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Trimble Inc (NASDAQ:TRMB)
Q4 2019 Earnings Call
Feb 12, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Trimble Fourth Quarter and Full Year 2019 Results. [Operator Instructions].

I would now like to hand the conference over to Mr. Michael Leyba, Director, Investor Relations. Please go ahead, sir.

Michael Leyba -- Director Investor Relations

Thanks. Good afternoon, everyone, and thanks for joining us on the call. I'm here today with Rob Painter, our CEO; and David Barnes, 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 two 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. First, Rob will start with an overview of the quarter and the year. After that, David will take us through the remainder of the slides, including an in-depth review of the quarter and the year, our guidance, and then we will go to Q&A. I would also like to briefly mention that we will be attending the Morgan Stanley Technology, Media and Telecom Conference on March 2 in San Francisco.

With that, please turn to slide three, and I will turn the call over to Rob.

Robert G. Painter -- President and Chief Executive Officer

Good afternoon, everyone. The focus of my comments today will be on Trimble's direction going forward. For baseline context, our fourth quarter revenue came in well ahead of expectations as did EPS. More importantly, ARR was $1.13 billion, up 6%; and free cash flow was $516 million on a trailing 12-month basis, up 23%. Revenue and EPS were at record levels for 2019. This represents my first call as CEO. Steve Berglund is now our Executive Chairman; and Borje Ekholm, CEO of Ericsson, has joined our Board of Directors. In addition, David Barnes is in place as our new CFO. David is off to a strong start and is focused on helping us both transform our business models and put in place the enabling mechanisms to efficiently and effectively scale on a global basis.

As I take over as CEO, I have the benefit of having been with the company for 14 years in both operating and executive leadership roles and continue to believe with great conviction in the strength of the Trimble business model. I'm also mindful that it's important to refine strategy when macro or competitive dynamics shift in meaningful ways. From an investor lens, our objective is to allocate capital and resources with an owner-operator mindset that looks like: one, executing a compelling strategy that drives unique customer value, thereby creating and sustaining competitive advantage; two, pursuing business models that create lifetime customer value; and three, putting shareholder capital and management bandwidth to work in the highest return areas that is ultimately measured by free cash flow. What has stayed the same since we put our business model forward at Investor Day in May of 2018 is threefold. One, our end markets are fundamentally attractive at a secular level. They are large global markets that are undergoing digital transformation. Two, our solutions deliver substantial return on investment as measured by productivity, quality, safety, transparency and environmental sustainability. Three, our differentiation, which happened at the intersection of the physical and digital worlds.

That is our technology stack enables hardware, software and services that allow us to connect work from the office to the field and back. Overall, we believe strongly that our business will create compelling returns over a cycle. What played out different than we anticipated a couple of years ago with the emergence of trade disputes as well as the influx of private capital into some of our end markets. On the positive side, what played out better has been the acceleration of software and ARR as a percent of our overall revenue mix as well as our product innovation achievements. As I come into the CEO role, my aim is to make the right long-term decisions to unlock sustainable shareholder value. In our last call, we said we would take a fresh look at the portfolio, strategy, structure and systems while respecting 41 years of what got us here. On that note, I think we are off to a strong incredible start. We have launched a new strategy that we refer to as Connect and Scale 2025. We will connect the industry life cycles we serve, we will accelerate our move toward subscription business models both in software and hardware, we will connect our solutions into bundled offerings and we will begin to enable a data strategy that we believe we are uniquely positioned to fulfill. Our strategy challenges us to reinvent ourselves, whether that be through business model transitions or making disciplined strategic bets on further shaping industry transformation. Our markets are dynamic and changing fast, and we will lead. We will also allocate capital in our underlying systems to help us efficiently and effectively scale. As proof points that we are in motion on the strategy, four examples: first, we said we would take a fresh look at the portfolio.

In the last four months, we exited three businesses. While financially immaterial to Trimble, they do increase our focus. Second, we said we would take a fresh look at the organizational structure. I moved from having 10 business operational direct reports to 5. We did this by bringing together the assets within our construction, geospatial, resources and transportation franchises. This structure enables our industry life cycle strategy, breaks down organizational silos and helps us approach our markets more holistically. One leader, one unified direction. We also stood up a fifth franchise business for autonomy, where we brought together a number of efforts across Trimble under one umbrella. Third, innovation. In the fourth quarter, we launched a number of notable solutions, including some of the following that are also shown on slide seven. We started shipping the XR10, which is a mixed reality device, purpose-built for integration into an industry standard hard hat for use in construction environments. The XR10 enables users to overlay constructable building information models and other digital project data onto the physical context of the job site, truly connecting the physical and digital worlds. In geospatial, we began shipping our X7 3D laser scanner which opens up a category in serving construction that was previously missing.

We also launched our new R12 GNSS receiver, which allows surveyors working in challenging GNSS environments to reduce both the time in the field and increase accuracy up to 30%. WeedSeeker two in agriculture launched and it spot sprays weeds and provides growers up to 90% savings and input costs when targeting and treating herbicide-resistant weeds. In our construction software business, we won a number of new logos that included a solutions bundle with Viewpoint ONE and Tekla Structures. In this case, we are integrating prefabrication and shop planning through Tekla with purchasing and project costing through Viewpoint. As a fourth example to highlight our willingness to reinvent ourselves by putting the spotlight on our recent acquisitions on slides five and six. Starting with Kuebix, which we closed on January 14. Kuebix provides a platform that we believe accelerates the reinvention of our transportation strategy and business model. The fundamental problems underlying the transportation industry include tight operating ratios, driver turnover and poor resource utilization.

The Kuebix investment thesis is threefold. One, to extend the Kuebix cloud-based community of shippers, carriers and intermediaries to include Trimble's carrier customers, representing approximately 1.3 million assets, enabling dynamic and optimal planning, execution and freight matching; two, expand the addressable market by more than $2.5 billion; and three, significantly accelerate our delivery of a multi-tenant carrier transportation management system in the cloud. Overall, the strategic thesis is compelling. In the short term, the acquisition will be dilutive to Transportation reporting segment margins and company earnings per share. The proof points in 2020 of our execution will be increasing the size of the shipper community, connecting carrier capacity, accelerating transaction volume through the platform and accelerating our next-gen carrier SaaS platform. We also announced three acquisitions in the fourth quarter. In our Utilities business, we acquired Cityworks, whose core strength as an enterprise asset management software platform for utilities and local governments, which include mobile, IoT and infrastructure life cycle solutions.

The combination will provide a comprehensive digital platform with real-time asset intelligence, workflows and analytics for transforming the way governments and utilities prioritize infrastructure maintenance and construction investments. In addition, we announced the acquisition of two Virtual Reference Station networks that add over 1.1 million square kilometers to Trimble's correction services coverage in Canada and New Zealand. Our subscription-based VRS correction services are accessible to customers around the world, who rely on high accuracy corrections to increase productivity and reduce operational costs. The correction services are ideal for professionals in agriculture, geospatial and construction as well as emerging high accuracy applications such as on-road positioning for passenger vehicles. The common thread of these acquisitions is that they are all software businesses that connect industry life cycles. Our leadership team is committed to the new direction of our Connect and Scale 2025 strategy. Over the next couple of quarters, our team will cascade the strategy deeply into the businesses by applying the Trimble operating system framework, which calls on us to continually focus on all three dimensions of strategy, people and execution. These build on each other to create a high-performing organization.

The natural question that emerges is what this implies for our long-term financial model. Our aim is to hold an Analyst Day to update the view on the long-term model in the second half of the year and then in the fourth quarter, use our Dimensions User Conference as a solutions demonstration and education venue. What we can share now is that we will look toward metrics that reflect the transition of our business to an increasingly subscription-based digital model. You will see some of these metrics on Slide four, such as ARR and cash flow. Our recognized revenue and EPS remain important yet increasingly incomplete measures of progression. Last, a couple of comments on company performance. In the Transportation reporting segment, the results are not to our standard. We have work to do and we have a plan. In our Mobility business, meeting the demands of the ELD mandate proved harder than originally expected. We elected the right software for both our older hardware technology as well as our newer hardware platforms. Supporting multiple platforms has proven to be a larger-than-anticipated R&D and customer migration support effort. This resulted in higher expenses and customer churn, which is negatively impacting margins and ARR. We've got a plan to get the performance back on track and it begins with delivering upon our customer commitments. We brought in a number of new leaders of the business and we are more proactively migrating customers from old technology platforms to new technology platforms. The nature of the business is that we have long subscriber lifetimes.

It is therefore in our interest to take short-term financial pain to upgrade customers to newer technology platforms in order to preserve the lifetime value of our customer relationships. Between the acquisition of Kuebix and working on the Mobility business, we anticipate 2020 profitability roughly in line with 2019 profitability. Our commitment is to make progress in 2020 that puts us on a course to deliver 2021 profitability closer in line to the Trimble model. In the other reporting segments, revenue exceeded expectations, led by solid performance in all of Buildings and Infrastructure as well as Geospatial. On earnings per share, performance exceeded expectations, with robust performance in Buildings and Infrastructure, Resources and Utilities and Geospatial.

Let me now turn the call over to David.

David G. Barnes -- Senior Vice President, Chief Financial Officer

Thanks, Rob, and good afternoon. In my commentary, I will review the results for both the fourth quarter and the full year of 2019 before closing with guidance. Starting on slide eight. Fourth quarter total revenue was $827 million on a non-GAAP basis, up 4.3% year-over-year and above our guidance range. To break that down, currency translation subtracted 1% and acquisitions, net of divestitures, added 1%. Organic growth was 4%, with approximately 3% growth from the impact of the 14th week. ARR, or annualized recurring revenue, grew to $1.13 billion in the quarter, up 6% year-over-year and was up 5% on an organic basis. Adjusted EBITDA, which includes income from our joint ventures and equity investments, was $193 million with a margin of 23.4%. Operating income dollars increased 4% to $178 million, with operating margins of 21.6%, essentially flat versus prior year. Our non-GAAP tax rate was 19%, also flat on a year-over-year basis.

Net income was up close to 10% and non-GAAP earnings per share in the fourth quarter were $0.53, up 5% or over 10% year-over-year. Fourth quarter cash flow from operations was $122 million, up 20% year-over-year, while cash flow from operations for the full year was $585 million, also up 20% year-over-year. Free cash flow, which we define as cash flow from operations minus capital expenditures, was $108 million for the quarter and $516 million for the year, each measure up 23% year-over-year. Consistent with changes in tax laws and to align with our international business operations, a non-U.S. intercompany transfer of intellectual property completed in the fourth quarter resulted in a onetime GAAP tax benefit for the fourth quarter of 2019. Our fourth quarter 2019 non-GAAP rate remained consistent with the prior year, and we expect that our 2020 non-GAAP rate will be 17% to 18%. Our balance sheet remains strong and provides us with flexibility to simultaneously consider a range of capital allocation actions. We expect to continue to delever and pursue modest share buybacks, while having dry powder deployable for attractive acquisition opportunities. During the fourth quarter, we completed the acquisitions of Cityworks and Can-Net.

We did not repurchase shares. Turning to slide nine. When looking at the full year for additional perspective, we view 2019 as a year that presented both opportunities as well as challenges. Revenue grew 4% overall and 2% organically. Operating margins for the year contracted 20 basis points to 20.4%, reflecting margin dynamics in Transportation as well as impacts from subscription transitions. EBITDA margins expanded 10 basis points to 22.7% and EPS grew $0.05 or 3% to $1.99, exceeding the guidance ranges that were previously provided during our third quarter earnings call. Lastly, our 2019 free cash flow is strong, driven by the growth in EBITDA, working capital management and lower acquisition expenses. Turning now to slide 10. Let's go through the fourth quarter revenue details at the reporting segment level, which are presented on a year-over-year basis. Buildings and Infrastructure delivered 10% organic growth, with high single-digit growth in both the building and civil construction businesses. Approximately 4% of growth came from the 14th week. Our e-Builder, Viewpoint and Civil Engineering businesses each experienced double-digit growth in the quarter. Geospatial improved sequentially relative to the third quarter and was down 5% year-over-year on an organic basis, an improved trend from recent quarters, despite a modest reduction in distributor inventory levels.

Segment revenues benefited by approximately 1% from the 14th week. As discussed previously, our revenues derived from OEMs in China were down significantly year-over-year, creating a continued year-over-year headwind for the operating segment. Resources and Utilities was up 1% on an organic basis. Approximately 2% came from the 14th week. Segment revenue was up about 6% on a year-over-year basis, benefiting from the inclusion of Cityworks, whose revenue stream largely consists of term licenses and software maintenance, which provides a predictable revenue stream. Lastly, the Transportation business produced a little less than 5% organic growth in the quarter, approximately 4% came from the 14th week. We note that all of our segments other than Geospatial have grown at a double-digit compound rate over the last three years. Moving on to slide 11. Let's go through the operating income details at a reported segment level. Fourth quarter operating income for Buildings and Infrastructure grew 26% year-over-year, with margins expanding 370 basis points to 29%. Geospatial experienced margin expansion as well, with operating income margins expanding 200 basis points despite a slight contraction in revenue. Resources and Utilities operating income grew 8%, expanding margins by 40 basis points.

Transportation operating income contracted as a result of the dynamics that Rob described earlier and margins were 14.8% for the quarter. Please turn now to slide 12 for a review of our revenue mix by type, which is presenting on a -- presented on a trailing 12-month basis. Software, services and recurring revenues continued to grow, up 15%, with organic growth in the high single digits and now collectively represent 57% of total Trimble revenue. Within that recurring revenue, which includes both subscription as well as maintenance and support, revenues grew 19% year-over-year and grew approximately 17%, excluding the 14th week. Recurring revenue now represents 34% of total Trimble revenue. Software and services grew 9% year-over-year and hardware contracted by 7%, reflecting in part the recent headwinds in our OEM-related businesses, particularly in China. On slide 13, I will now close with guidance, which excludes the impact of any future acquisitions or divestitures and assumes stable exchange rates. We approach 2020 with optimism about our business model and long-term prospects, while still cognizant of some challenging market conditions in the short run. We ended the year with $1.13 billion in annual recurring revenue and a high degree of confidence that subscription and other recurring revenue will continue to grow at a healthy pace. We also have strong broad-based momentum in our Buildings and Infrastructure segment and we expect a positive year for the Geospatial segment, which was impacted in 2019 by OEM and China-related weakness and which will benefit in 2020 from new product introductions. Profitability will also benefit from structural cost reduction activities that we implemented in the second half of 2019. However, in the short term, we are cautious about a number of factors.

The agricultural market remains challenged, and we do not believe that the Phase one trade deal will have a meaningful positive impact on our agricultural business in 2020. So our agricultural business plans for this year reflect the continuation of the market conditions we have seen since the beginning of the implementation of tariffs. In addition, Rob discussed the challenges related to ELD in our Transportation business. Finally, we are actively monitoring the potential impact coronavirus could have. Our business with customers in China represents about 2% of Trimble revenue and this business will be heavily impacted in Q1. First quarter results will also be impacted by delays in our China-based supply chain and to a lesser extent, by projects and commercial activity indirectly related to the Chinese economy. Our plans assume a resumption of more normal activity in the coming days and weeks, although there is obvious uncertainty in how quickly the coronavirus contagion will be controlled. If the contagion spreads further and recovery efforts are delayed, the impact on our business would grow.

For the first quarter, we expect non-GAAP revenue of $780 million to $810 million and earnings per share of $0.40 to $0.45. The first quarter revenue range assumes total company growth of minus 3% to plus 1%, with organic growth in the minus 4% to flat range, plus a little over one point from acquisitions, with a little under a negative one point from FX. Our cautious outlook in Q1 reflects an estimate of an approximately 3% negative year-over-year impact to revenue growth from coronavirus and includes costs associated with meeting the demands of the ELD mandate. Our current full year 2020 total company growth is estimated at plus 1% to plus 4%, with organic growth in the flat to 3% range. Currently, we expect organic revenue growth to improve as we go through the year. We expect ARR growth in the high single digits overall for the year, with growth rates increasing through the year. Organic growth in the fourth quarter of 2020 will be negatively impacted on a year-over-year comparison basis by about 3% due to the 14th week in the fourth quarter of 2019 and that has a little less than one point negative effect on the year.

From a profitability perspective, our earnings per share full year guidance is for flat to mid-single-digit EPS growth, which incorporates a number of factors. We expect margins to expand in many of our businesses, driven by growth in software mix as well as recent cost reduction activities. Tempering that margin growth are the short-term negative profitability impacts from subscription transition, incremental costs, primarily in the first half of the year to upgrade customers to newer technology platforms related to the ELD mandate and the Kuebix acquisition, which is expected to be modestly dilutive in 2020. From a cash flow perspective, we expect to follow-up a very strong 2019 with operating cash conversion of greater than 1.1 times non-GAAP net income. Interest expense should trend down as we go through the year as we currently expect to dedicate a significant portion of cash flow to debt paydown.

With that, I'll hand it back over to Rob.

Robert G. Painter -- President and Chief Executive Officer

Thanks, everyone, for taking the time to be with us today. I want to close by acknowledging the efforts of our 11,500 global Trimble colleagues for delivering a solid 2019. 2020 will be an important year as we lay the foundation for our Connect and Scale 2025 strategy. My message to investors is the same as our employees. We've got this. We appreciate your support. Operator, let's please open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Ann Duignan with JP Morgan. Your line is now open.

Ann P. Duignan -- JP Morgan Chase & Co -- Analyst

My first question is around ELD and the cost -- the actual dollar costs that you incurred in Q4 on the back of that. And -- but you have the actual dollar or the EPS impact, however you want to give to us, the actual impact that you're contemplating in 2020, Q1 and beyond.

David G. Barnes -- Senior Vice President, Chief Financial Officer

Ann, so if we look at the fourth quarter results in the Transportation segment and if I look at it on a year-over-year basis, that's probably the best way to look at it at an op margin level. Or -- and so at the operating margin level, we were, I'd say, five to six points of degradation in the Transportation segment from ELD, which is primarily threefold: first being hardware margins compressing toward the end of the second phase of the mandate going into effect; the second one were just some discrete onetime costs associated with it, things like over-the-air updates, which drive cellular bills up; and then the third impact was a bit of churn in the business that hit the fourth quarter. As we look to 2020 in the business, what I would set for expectations is a margin profile that's roughly in line with the performance of 2019. So just think of revenue and profitability, roughly the same. And so we have some aspects of the business and Transportation that will be improving and growing next year, with somewhat of an offset in the ELD side, which neutralizes that. So I would expect in 2020, revenue and op margins to be about the same as 2019. And that's all in service of getting the 2021 results in line and protecting the long tail subscriber base that we have.

Ann P. Duignan -- JP Morgan Chase & Co -- Analyst

Okay, that's helpful. And when you talk about sales roughly in line, you're talking organic like-for-like? Or are you talking including the Kuebix sales?

David G. Barnes -- Senior Vice President, Chief Financial Officer

It's mostly organic but there is some revenue that's associated with Kuebix. So on an organic basis, I would expect it to be slightly down in Transportation in 2020. Now part of the down that we'll also have in 2020 relates to our back office enterprise business or Tru, which is a transportation management system. And we're beginning the conversion to a subscription business model, which will be a negative at the top and bottom line but obviously, virtuous to the business model as we grow the ARR in that business.

Ann P. Duignan -- JP Morgan Chase & Co -- Analyst

Okay. And just one final clarification on Kuebix. When I looked at that business on the website, the first thing that popped up was free software. So can you just talk a little bit about the profitability of that business? And you did say it will be a drag, but is that just on accounting -- purchase accounting? Or is it lower margins on a go-forward basis?

David G. Barnes -- Senior Vice President, Chief Financial Officer

So it will be a lower margin in 2020. And there's a, call it, a freemium business model. So there's over 21,000 shipper participants currently using the Kuebix shipping community. So a subset of those are paying participants in the model. So we're driving shipper volume to the community and the platform to map to, on the Trimble side, our carrier platform. So we think this is a -- we think it's a very exciting space and this ability, we think we have to uniquely connect the supply and the capacity side of transportation. So in the short term, it will be a drag to EPS and we think this accelerates our ability to go after this strategy. There's certainly a lot of transformation, digital transformation happening in all of our markets. We think we're at the front and center of that digital transformation. This is the next logical place, in our view, in transportation, is this connectivity between the shipper and carrier. So if we would have done it organic, inorganically, it would have been an area where we wanted to put incremental investment. This is with the community of 21,000 carriers and growing -- 21,000 shippers and growing. This is -- this, to us, was the best and quickest move.

Operator

Your next question comes from the line of Andrew DeGasperi with Berenberg. Your line is now open.

Andrew Lodovico DeGasperi -- Joh. Berenberg, Gossler & Co. -- Analyst

I guess, first, could you quantify what the exact dilutive effect to EPS is Kuebix? And then maybe secondly, the 3%, I guess, headwinds from the coronavirus, can you maybe expand into how you came up with that number?

David G. Barnes -- Senior Vice President, Chief Financial Officer

Sure. On the Kuebix side in 2020, it would be, call it, a few pennies of EPS. So low single -- low to mid-single-digit EPS hit from that acquisition and the investments we're making in the business and to grow that business. On the coronavirus, so the -- here's the way we looked at it. We have business that we do in China, so-called domestic China business, and then we have a supply chain that comes out of China. And it's less about the finished goods supply chain, it's really more about the components that come out of China. So for the business that we have in China, again, take the 2% of revenue, look at a mid-guidance in, call it, close to $800 million, $700 million -- call it $795 million, I would take 2% of that, cut that in half, and you've got what we would estimate to be a hit -- potential hit there, impact in Q1. That doesn't bridge the whole number. The rest of it is really supply chain dynamic. And answer first there would be about one to 1.5 weeks of relevant lost sales as a result of that. So the way we would come up with that calculation is as follows. We see about a 3-week -- and so this is what's baked into our numbers. We see about a 3-week, I'll call it, delay.

The first is Chinese New Year is extended one week. The second is that we're midway through the second week where factories are coming back online, ours included, but most of these factories are running at about 1/3 capacity due to the nature of how their -- the officials are allowing people back into work. And then the third week of potential delay we see is relative to the freight. So freight is moving slow out of China. Commercial carriers aren't flying to China right now. So there's additional freight time, a lot of which is going to Hong Kong to then get out of the region. So if you take -- if you add those a week, a week, a week up, you get three weeks, we figure we have -- we estimate we have about two weeks, I'll say, of buffer in supply and inventory. So three minus two equals one, we apply that to the relevant revenue streams because remember, it's not all the revenue streams would be relevant in this analysis, and you get the 3% we talked about. The ARR, if I look at the ARR, specifically, we would not expect an impact on the annualized recurring revenue coming out of the quarter. So this really is mostly centric to the hardware businesses.

Andrew Lodovico DeGasperi -- Joh. Berenberg, Gossler & Co. -- Analyst

Thank you.

Operator

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

Richard Charles Eastman -- Robert W. Baird & Co. -- Analyst

Yes. Rob, could you just speak to the balance. If we're looking in 2020, core growth, 0% to 3%, maybe just some thoughts around the B&I business, is that kind of maintain a single-digit growth rate with maybe a 1-point headwind on the deferred revenue side? Or just maybe just go through the other three segments here, R&U and Geospatial and B&I relative to the 0% to 3%?

David G. Barnes -- Senior Vice President, Chief Financial Officer

Sure, Rick. So I would think about first half of the year, second half of the year, we see a second half of the year at an accelerated growth rate as compared to the first as opposed to the first half of the year. If we look at a segment -- more of a segment level, I'll give you a kind of a high-level view of that. Building and Infrastructure would, for us, be on a -- I'd say, on a apple-to-apple basis, the strongest segment coming into 2020. What we'll see in addition to Building and Infrastructure this year is the subscription conversion, which does create a headwind top and bottom. So you've heard me talk on the last calls about the success that the Viewpoint business and the e-Builder business have had as part of the Trimble portfolio, and they continue to perform well at the end of last year. The SketchUp product, which is an architecture and design business, initiated the conversion in 20,000 -- I'm sorry, 2019 and in 2020, we would hit the bottom of that trough, so we would hit a decrement there and then really come out starting in 2021.

And then we expect to start to see a couple of the other businesses with the software businesses within construction begin the transition to maybe really toward the back end of the year. So those are the dynamics happening within Buildings and Infrastructure. If we look at the Geospatial business, obviously, the assertion we have on the year as we start out on a rough patch because the coronavirus impact is quite centric to Geospatial of the four reporting segments. And as we come through the year, we get some of the lapping effects as we start to lap the OEM challenges we had last year. I look at the Resources and Utilities business, a bit of a tale of two halves of the year. Some of that's a lapping effect but the standout performer actually is our Utilities business has been performing nicely in the second half of 2019. We expect to see that performing and driving growth in the business. And some of that is acquisition, the three acquisitions we talked about were all in Resources and Utilities that we had announced in the fourth quarter. And then Transportation, the way I answered Dan's question, I would answer it, same. When I think about the first half or second half of the year is revenue growth, like really pretty even throughout the year -- low throughout the year and even.

Richard Charles Eastman -- Robert W. Baird & Co. -- Analyst

Okay. And then just maybe one last question on the BIM business itself. Any -- how did it perform in the quarter? And then has there been any negative impact that you could see from the Brexit? I mean there were some questions about that but anything kind of materialize or visible here?

Robert G. Painter -- President and Chief Executive Officer

By the time it rolls up at the segment or the company level, it doesn't become -- it doesn't become material. Certainly, there appears to be some -- well, I'll say, more clarity, I guess, it's not perfect clarity of where -- there's clarity of where it ends, but maybe not clarity of how it ends. With that increased clarity, OK, can provide some stabilization in the market. What I would want to say is that the segment had a -- or that subsegment of Building and Infrastructure, the BIM businesses had a really nice fourth quarter, some of which would have been the 53rd week we had. But really, if I look at the fundamentals, our standout performer was that Architecture and Design business, the SketchUp transition to subscription, we saw 50% year-over-year unit growth. Everything on last year and really just a tremendous performance from that team, showing the possibilities of expanding the addressable market through the model conversion.

Operator

Your next question comes from the line of Jerry Revich with Goldman Sachs. Your line is now open.

Jerry David Revich -- Goldman Sachs Group Inc -- Analyst

Your subscription growth really performed nicely in the quarter, accelerating from 13% to 18% despite the headwinds that you spoke about in Transportation. Can you just talk about what parts of the business performed well? And how big of a headwind was the churn in transport? And I appreciate four points from the extra week, but still the underlying performance looks like it accelerated.

David G. Barnes -- Senior Vice President, Chief Financial Officer

If I started to talk at the top level, we would have expected to see another three points of ARR growth from the transportation business, were it not for some of the churn. And then if I look at the segments that underlie it, the Buildings and Infrastructure businesses were really the standout performer in terms of growing the recurring revenue in the quarter. Secondarily, in our Resources and Utilities business, debt positioning services, I know you've written the report on the RTK network, so whether it's our RTK or RTX networks where we provide ubiquitous interface to customers on a global basis, they had another outstanding quarter, an outstanding year.

Jerry David Revich -- Goldman Sachs Group Inc -- Analyst

And in terms of the subscription momentum you mentioned a moment ago, the strong performance of SketchUp, it sounds like the pipeline at B&I and RTK is pretty strong as well, based on your comments on the call. So is this level of double-digit subscription growth sustainable into the early part of '20 based on the pipeline that you folks see for each of those segments?

David G. Barnes -- Senior Vice President, Chief Financial Officer

In aggregate, what I would expect to see is mid- to high single digits in the first half of the year and then the possibility for the double in the second half of the year. And the delta on that is the Transportation business we see getting back to where we want it or toward where we wanted, I should say, in the second half of the year, and that would be our opportunity to get that back in the double-digit on an organic basis.

Jerry David Revich -- Goldman Sachs Group Inc -- Analyst

And lastly, Rob, earlier on the call, you spoke about essentially fewer reporting business segments and more central Trimble initiatives. Can you give us an update on your planned transitions to subscription for the other businesses, based on the success you've had at SketchUp? Any change in plan? I think in the past, you had outlined $500 million worth of potential transition toward subscription. And I'm wondering if you could care to update that and give us a sense of timing and cadence as you work through the plans.

Robert G. Painter -- President and Chief Executive Officer

Yes. So what I talked about before would have been closer to about $450 million of perpetual revenue that we have, that we would look at and analyze ability to convert to subscription. Not all of it will make sense to do. The plan we have is to accelerate the path that we were on for that. A good amount of that will take this year to 2020 to do the underlying planning and infrastructure building to start delivering upon it in 2021. And I would say, in some cases, it's a multi-year acceleration of the plans to move toward subscription. The two places where I would expect to see it the most on the software side would be in the BIM software and the construction side and secondarily, in transportation and the back office software that we have. Those are the -- follow the 80-20 rule, and those are the two big opportunities -- represent the two big opportunities we have to accelerate transition. I'm committed to making the investments we need to in the underlying systems and plumbing of Trimble in order to help us execute upon the conversion strategy. It's the right thing to do for the business.

And I think the -- and the potential is, I think, outstanding for the company when we do this. And it's more than just converting to a subscription business model for the sake of changing a business model. Our strategy, when we talk about Connect and Scale 2025, is connect the life cycles that we serve. If we're going to connect the life cycles that we serve, we need to be able to deliver integrated and bundled offerings of the hardware and the software. So think about configurable packages or collections of the solutions that we have. So we think on many fronts that this enables additional opportunities down the line. And ultimately, I think this can enable a data strategy for Trimble. The other place to look out for this year for us is on the hardware side. And we'll have dropped that a couple -- in a couple of the calls that we'll investigate and experiment with some hardware as a service type business models. And those may show up as a term license in the end. I mean, we'll have to bridge for The Street when we're trying that. One thing to know about the term license offer, by the way, is it sits at about $75 million, and that's not picked up in ARR, which, although right in the old accounting, in 605 accounting that would have been considered recurring revenue. So that's missing. When we talk about that 1.3 -- $1.13 billion of ARR, that excludes the term license software cap as well, which is an attractive revenue stream, in addition then to converting additional businesses to subscription and software meets starting to make some experimentation on the hardware side.

Operator

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

Jonathan Frank Ho -- William Blair & Company -- Analyst

I just wanted to just start with the strategic realignment and sort of the business unit sharper focus that you talked about. What does this maybe allow you to do that you couldn't do in the past? And sort of what's the impact on visibility, having that maybe tighter span of control?

Robert G. Painter -- President and Chief Executive Officer

Well, I think about clarity, when I think about reducing the number of segments. So if you take the Construction business as an example, and we're pursuing a strategy of connected construction. In agriculture, we talk about a connected farm. In transportation, we talk about a connected supply chain. So this connectivity is central to the strategies that we're pursuing. I'm a believer in single points of accountability. So in the construction business, we have a single point of accountability for affecting -- positively affecting the strategy to connect construction. So the extent to which we need to make capital allocation decisions and priorities and trade offs, we're doing so now within construction, under one leader as opposed to what would have been multiple leaders reporting, I guess, being able to construct multiple leaders reporting to me. It consolidates that effort within construction. So I think we can be faster, and I think we can be better as a result of the structural reorganization that we made. So that clarity into -- direction clarity into priorities, speed at which we can make decisions, I think these are all really important things. In terms of visibility, let's say, if you need visibility into the financials in the pipeline, the visibility increase is going to come as we get more and more recurring revenue in the business. As David mentioned now, I think it's 34% of our revenue is recurring. That keeps going north in these businesses, and that will be a good thing for the visibility.

Jonathan Frank Ho -- William Blair & Company -- Analyst

Got it. And you referenced maybe some impacts from, I guess, private investment and M&A activity in the industry. Can you talk about maybe where that's most pronounced and whether that's actually changed some of the competitive dynamics as well?

Robert G. Painter -- President and Chief Executive Officer

Sure, Jonathan. I think it's most pronounced in Construction, Transportation. And if I back up at a secular level -- to me, the secular context is the digitization of industrial markets. And so from a good news perspective, it's validating that I think we're playing in the right field. We've been doing this for 20-plus years at Trimble. And at some point, right, as the thesis played out, that these markets were going to and are going under a digital transformation that ultimately is going to attract capital. Then you had an event like ELD as a government mandate in North America, OK, that's going to attract capital on its own discrete basis, based on companies having to have the technology. And you either have it or you don't, you have to have it. So that's certainly created a level of disruption in the market. And I'd say disruption on a number of levels because a good amount of the competitors that came in have already gone out of business. Just because capital comes into a market, it doesn't mean it's smart money that comes into the market. So that's been a bit of what we've seen in Transportation and Construction to an extent as well. Construction is such a large and fragmented business on a -- really on a global basis that I would say that's been less disruptive. But those are the two places, Jonathan, where we've seen capital come in.

Operator

Your next question comes from the line of Jason Celino with KeyBanc. Your line is now open.

Jason Vincent Celino -- KeyBanc Capital Markets Inc -- Analyst

Thanks for taking my question. Really just one for me. When you talk about your operational focus and some of the changes you're making, how should we think about the pace of change? And is this going to be a multi-quarter kind of initiative or an ongoing kind of just focus?

Robert G. Painter -- President and Chief Executive Officer

Well, at a thematic level, I'd say it's an ongoing focus. So we're -- and we've defined our strategy as we call Connect and Scale 2025, we work backwards from what we see as the 2025 opportunity in our business. To get to that 2025 strategy, we were installing an operating system that simultaneously looks at strategy, people and execution. And we talk about renewing the culture at Trimble, the foundation with which it's built upon: inspire, engage and achieve. We inspire purpose. We engage to get the best out of one another and we orient to achieve outcomes. That, I would say, is an ongoing thing for us and don't intend to change that in the coming months, quarters, years. I would call that the constant as we move forward. To get to your question about, let's say, what would change and what you should expect, certainly, we will be talking -- continue to be talking about the subscription business models and that's something we'll continue to update investors on. That's why we think it's the right thing to do in the second half of the year, is to have another Investor Day. David and myself being new under the respective roles, and we're talking about model conversions, it just sets up a logical timing to do that in the second half of the year to get more specific about what that means on a mid- to long-term basis. So that would be probably the thing I would point out in terms of to watch for the ongoing commentary around. Otherwise, the rest of what I talked about, I would say, is ongoing.

Operator

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

Eric -- Morgan stanley -- Analyst

This is Eric [Phonetic] on for James. Maybe just touching on the 2025 strategy and kind of how you're thinking about the portfolio as you're reviewing it. Are you contemplating or thinking about other potential small exits first as part of the strategy? Is there kind of still general acquisitive kind of motions that you're planning? And maybe just how we should think about that part of things?

Robert G. Painter -- President and Chief Executive Officer

Sure. So when we think about the Connect and Scale 2025 strategy when we're in the, I'll say, the strategy pillar, we're looking at the nature of the markets that we serve. So we need to be serving markets that have attractive fundamentals; two, we need to have the right solution set that's delivering customer value; and three, we need to optimize a go-to-market model. Those are the three things we think about within the strategy. So when I look at and we look at the market attractiveness and map that to, say, the portfolio of businesses at Trimble, I'd say that the axis -- the X and Y axis to think about or the 2x2s is going to be financial performance on one axis and strategic fit slash importance on the other. And I say, low and low in that matrix is not the place to be. And so when we think about what makes strategic fit, OK, that can have its own set of dimensions to it. In aggregate, when we look at the portfolio, there's maybe 5% of the revenue that we think is relevant to take a harder look at. So 5%, not 10%, not 20%, but 5%. That does represent potentially a number of businesses in aggregate and to the extent that we believe that we can be more focused as a team.

And that's really kind of becomes more focused with the management bandwidth. Yes, more focused with capital but more focused with our bandwidth. We want to put that bandwidth we have to impacting the strategies in those five businesses that we talked about. So that would be -- let's say the potential exit side of an analysis in the portfolio. From an additive side to the portfolio, I would expect us to be acquiring on an ongoing basis within, I'd say, constraints of the -- sorry, liquidity and the debt structure and right deal, right time. Look at our own baseline, we've been an acquisitive company over time. We don't acquire for the sake of acquiring. It's to positively impact and affect the strategy as we look to these -- to define the transformation of digital transformation of the markets we're serving. Kuebix is, of course, an example of that. We had announced those three deals in the fourth quarter. So I would expect us to be open to the right opportunities over time.

Eric -- Morgan stanley -- Analyst

That's really helpful for rightsizing kind of our expectations on that. And then maybe just changing gears a bit. I know that you touched on like the Phase one China-U.S. trade deal not having much of an impact to improvement in kind of conditions that your customers are seeing. What do you think needs to change to actually have an impact there? Maybe how you're thinking about that?

David G. Barnes -- Senior Vice President, Chief Financial Officer

I think it's relatively simple. We moved from the Phase one signed piece of paper to purchases happening. Purchases happen, inventory goes down, money comes in, part of that is farm income goes up, capital is outlaid and that would be the chain I would draw on that. Now in between now and then, what we would see, I'd say, on a positive side or positive side for Trimble is that equipment in the field is aging and the nature of the technology we have can't make that equipment more productive. So we do look to upgrade technology that's in the field and we're not just dependent on new machines coming off the line. It certainly helps when new machines come out into the market. But the majority of our business, the strong majority of our business is an aftermarket business. And I should add for context, as you think about modeling us, our agriculture business in North America is now a minority of our business in ag. We did used to be 2/3 North American business. It's now inverse of that, the bulk -- Europe's now our largest market. So we've diversified geographically over these last few years in the agriculture business. So that is how we think about the trade deal. So it's clearly a good thing that we have the deal and now let's -- it needs to play out.

Operator

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

Colin William Rusch -- Oppenheimer & Co. -- Analyst

With these comments around a fifth franchise and autonomy, can you provide some additional detail on what that franchise looks like? Should we expect it to become a separate business line at some point? And how are the capabilities going to be separated out from the existing businesses?

David G. Barnes -- Senior Vice President, Chief Financial Officer

Colin, so if we think about the -- let me work backwards from the market opportunity that we see. We see a set of markets and capabilities we can serve on-highway and then off-highway. If you think about off-highway, what we do in agriculture and construction, we call it machine control and guidance. So that's level -- between Level one and two autonomy already today, we just never called it autonomy. So the nature of the guidance was already on a spectrum of autonomy and we'll continue to work our way up that autonomous spectrum toward the Level 5. We think the way to get there is to extend automation and workflows, both in agriculture and in construction. And we also think when you bring together the whole portfolio of Trimble and we talk about connected construction or a connected farm, and if you really extend that analogy all the way out and we've got Level five autonomy at some point in time, those machines need to know what to do. They need a work order, they need a plan.

They need to fit inside some of their system. And guess what, we have these systems by virtue of the connection of the physical and digital field, the office, the hardware and the software that we do today. We think we're really well positioned to do that. And so we're bullish on the opportunity we have there. When we look at the on-highway world, we've been a -- arguably, I could say, a supplier of high-definition mapping systems. We sell a positioning stack of technologies and you can trace back to 41-year history of Trimble and our roots and positioning technologies. So whether it's RTK, RTX providing correction services to our inertial technologies, to dead reckoning technologies, to the GPS chipsets that we have, we have a set of technology that's relevant in a world moving toward autonomy on-highway. And like off-highway, it may start with the automated driving systems and either from ADAS systems, where we are doing work with companies today, whether it's the OEMs or the Tier 1s. And so we see a continued, say, set of possibilities -- interesting and attractive possibilities to us in that world. So then what we did structurally, as I guess organizationally, is we looked across the company where we had, I'll say, pockets or divisions or businesses that have relevant technology in the world of autonomy and we brought those together under one leader. So rather than having a set of potentially subscale efforts in a number of different parts of the company, we brought them together and to that mantra, one leader, one direction. So we feel really good about it. And it also maps to the Geospatial business quite well. So when we think about a good number of these businesses are within our Geospatial reporting segment. So a fair amount of the technologies map to -- map there.

Colin William Rusch -- Oppenheimer & Co. -- Analyst

And then just looking at the cash conversion, that continues to be strong. And in an environment where you've got persistently low cost of capital in the debt markets, how does that impact your acquisition strategy and the potential to acquire some significant capabilities as you work toward this Connect and Scale target over the next five years? I mean, are there transformational acquisitions that you've done in Buildings and Infrastructure that can be replicated in other segments, particularly in the Transportation side?

Robert G. Painter -- President and Chief Executive Officer

Well, we're certainly open to it if it's the -- clearly, if it's consistent with the strategy. We've been in -- we're investment grade. And so we'd like to maintain the investment-grade status that right sort of bounds a leverage set of parameters. Of course, you can go above that and work your way down there in due course. We think we are strategically positioned in a very attractive place and all of -- really in all the end markets that we serve and we want to continue to lead those end markets that we serve. And so to the extent the transformative deals present themselves, we would certainly be open to it, again, if it fits the strategy and if it's the right team and the right culture fit, and if our businesses are going to place to be ready to absorb the work to do that. I will say, by way of context or backdrop on the markets we're in, really not a lot of deals or companies out there that actually kind of hit the threshold of that size. We've talked about that more in Construction that we have in Transportation but, say, in the construction market, within about a 18 months -- 12 to 18-month time span is when we did the Viewpoint and e-Builder deals, the small set of companies that we're operating at scale, were largely acquired in pretty short order. We look at markets like agriculture, there's really -- if you look at an ag software company, there's not ag software companies of scale. And then you get to transportation, which is where you are, maybe there's a few, but not many.

Operator

This concludes our Q&A session. I will now turn the call over back to Mr. Mike Leyba.

Michael Leyba -- Director Investor Relations

Thank you, everyone, for joining us on the call. We look forward to speaking to you again next quarter.

Operator

[Operator Closing Remarks].

Duration: 62 minutes

Call participants:

Michael Leyba -- Director Investor Relations

Robert G. Painter -- President and Chief Executive Officer

David G. Barnes -- Senior Vice President, Chief Financial Officer

Ann P. Duignan -- JP Morgan Chase & Co -- Analyst

Andrew Lodovico DeGasperi -- Joh. Berenberg, Gossler & Co. -- Analyst

Richard Charles Eastman -- Robert W. Baird & Co. -- Analyst

Jerry David Revich -- Goldman Sachs Group Inc -- Analyst

Jonathan Frank Ho -- William Blair & Company -- Analyst

Jason Vincent Celino -- KeyBanc Capital Markets Inc -- Analyst

Eric -- Morgan stanley -- Analyst

Colin William Rusch -- Oppenheimer & Co. -- Analyst

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