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Trimble inc (NASDAQ:TRMB)
Q3 2021 Earnings Call
Nov 3, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to Trimble Third Quarter 2021 Results. [Operator Instructions].

I would now like to hand the call over to your speaker today, Mr. Rob Painter, President and Chief Executive Officer. Please go ahead.

Robert G. Painter -- President And Chief Executive Officer

Welcome, everyone. Before I get started, a quick reminder that our presentation is available on our website, and we ask that you please refer to the safe harbor at the back. I'll begin on Page two with the key messages we want to convey today. In the third quarter, our team once again delivered the ending results and did so with an incredibly difficult supply chain environment. We exceeded our expectations and delivered record ARR of $1.36 billion, up eight percent year-over-year and up 11% on an organic basis. Total revenue growth of 14%, EBITDA margin of 25.9% and trailing 12-month operating cash flow of $784 million. We achieved record third quarter levels of revenue in many of our businesses with another exceptionally strong quarter in machine control and civil construction, guidance in agriculture and survey and mapping.

Our results demonstrate the strength of the underlying market recovery and the quality of our execution against our Connect & Scale 2025 strategy. Our results also demonstrate the quality of the Trimble team. And I want to give a special shout out to all our colleagues, led by Leah Lambertson, who are helping us manage through the supply chain challenges. On the basis of this collective strength, we are raising our annual earnings guidance despite a tightening supply chain environment. Let's start with market conditions where the overall landscape remains robust. Construction backlog is healthy, especially in residential and infrastructure translating to strength in our Geospatial and Buildings and Infrastructure reporting segments. We remain optimistic that the infrastructure bill will ultimately be passed in the United States, which would bolster our long-term outlook in our construction and surveying businesses, starting at some point in 2023.

We have been and are building product and go-to-market capabilities ahead of this opportunity. I'm especially proud of the role Trimble has played in leading policy advocacy in support of technology adoption, more specifically around advanced digital construction management systems, which provide state departments of transportation with access to funding to help them accelerate adoption of proven design and construction technologies. We will continue our commitment and support to the nation's federal highway administration and state departments of transportation in their pursuit of achieving sustainable and state-of-the-art project delivery. In Agriculture & Forestry, commodity price strength continues to translate into customer buying power and our backlog remains strong. We are tracking inventory levels of major ag products which remain in a healthy position and provide some line of sight to continued farm financial strength, which we see as an important counterbalance to rising input costs.

On the policy front, we have been advocating for a legislative proposal called SB 2750 Precision Agriculture Loan Program Act in the United States that provides low-cost loans to farmers to incentivize adoption of precision ag technologies. Outside the United States, we also see positive conditions, including ongoing subsidies, and we are beginning to see more policies that promote the use of technology to increase environmental sustainability. In transportation, we had another quarter of solid bookings growth, improved customer retention and higher operating margins. In September, we announced a strategic relationship with Procter & Gamble, which will shape the development of an agile procurement collaboration platform and will, in turn, complement our existing set of supply chain-focused solutions. Success looks like expediting contracting and onboarding processes to increase the velocity of business transactions while enabling more efficient movement of freight.

I'm also pleased to report we were the first major technology provider to certify in Canada for the Canadian ELD mandate, evidence of the positive shift in product delivery in the business. On the downside, supply chain is especially disruptive to the operations of many of our trucking customers and will likely constrain our ability to see our execution progression flow through the near-term P&L. Let's turn to Page three and talk some -- about some notable progression of our Connect and Scale 2025 strategy seen through the lens of the Trimble operating system, capturing strategy, people and execution. To set context, our strategy is an industry platform strategy that manifests in bringing the best of Trimble together with ecosystem partners to transform industries that support how we live, what we eat and how we move. On the heels of COP26, we are also convinced that we can have a profoundly positive impact on addressing climate change through the use of technology.

As a proof point of our strategy, we are excited to have announced on October 27, the formation of a strategic partnership with Microsoft to build, market and sell our industry cloud platforms and solutions that connect people, technology, tasks, data, processes and industry life cycles. Our initial focus will be to build the Trimble Construction Cloud powered by Microsoft Azure. Importantly, we will also partner on joint go-to-market strategies to globally deliver these cloud innovations. As an additional strategic proof point at our annual user conference for our Viewpoint construction management software business, we announced the transition of Viewpoint's branding to Trimble. At this user conference, we also launched Trimble Construction One, as shown on Page four, which extends the capabilities of Viewpoint's current SaaS software suite with new and exciting capabilities from other parts of the Trimble software portfolio. in addition to the Viewpoint financial and operational management capabilities, Trimble Construction one incorporates Trimble's estimating and detailing solutions as well as Trimble's advanced project management offering in a single integrated package, which is now being sold by multiple Trimble divisions.

Our direction is clear, we will continue to expand the capabilities of the Trimble Construction One platform for our Civil and Buildings customers to further connect the physical and digital worlds across construction, field and office workflows. On people, we continue to be recognized as a top company culture, and FastCompany recognized us as the best workplace for innovators. In an increasingly competitive job market, melding Trimble's mission with our innovative culture is top of mind for our talent attraction and retention efforts. As evidence of the attractiveness of Trimble, in September, we hired Jennifer Len as Chief Platform Officer; and Poppy Crum as our Chief Technology Officer, both world-class talent who see and believe in our vision and the potential of Trimble. On execution, we continue to innovate.

Our MX50 mobile scanner launched in the third quarter as did a beta release of SketchUp for iPad, and we continue to enhance the capabilities of our best-in-class high accuracy correction services, which enable positioning down to centimeter levels globally. We are investing heavily in our own digital transformation, which will provide the system and process fuel to deliver our increasingly connected solutions in an efficient and scalable way. Before I turn the call over to David, I want to talk about how we are operating and leading in the current environment, which presents both volatility and unprecedented opportunity. For years, we have talked about our three-four-three operating model, three months, four quarters, three years. I see the role of Trimble leadership as being stewards of capital allocation on behalf of our shareholders, where we balance short-term realities with long-term possibility.

As we move toward closing out 2021 and into 2022, we will continue to support the incremental investments we are putting toward our digital transformation, autonomy and infrastructure opportunities. We have high conviction that these investments will create new sustainable and differentiated long-term growth opportunities for Trimble, and we remain bullish on the long-term secular opportunity for digital technology to make our customers more successful, productive and sustainable. We will have the courage to look through term supply chain disruptions and upfront cost of our digital transformation and to hold ourselves accountable to progressing our Connect and Scale strategy.

David, over to you.

David G. Barnes -- Chief Financial Officer

Thank you, Rob. Let's start on Slide five with a review of third quarter results. Third quarter revenue was $901 million, up 14% on a year-over-year basis. Currency translation added one percent and divestitures subtracted two percent for a total organic revenue increase of 15%. Gross margin in the third quarter was 58.7%, down 10 basis points year-over-year, reflecting several factors, including higher product and freight costs in our supply chain, offset by increased pricing and lower discounting. Adjusted EBITDA margin was 25.9% down 90 basis points year-over-year, driven by higher operating expenses and investments in the business. Operating margin was 23.8% down 40 basis points year-over-year, but still up over 300 basis points versus the pre-COVID third quarter of 2019. Operating expenses last year were unusually low in a number of areas, including compensation expense.

Net income dollars increased by 10% and earnings per share increased by $0.06 to $0.66 per share. Our third quarter cash flow from operations was $166 million and free cash flow was $156 million. Cash flow was down modestly year-over-year in the quarter as we are purchasing inventory in response to strong demand and supply chain shortages. Operating cash flow was up 23% on a year-to-date basis with a conversion ratio to net income above 1.1 times. Our net debt declined $88 million in the quarter, and our net debt to adjusted EBITDA ratio fell to 0.9 times. During the third quarter, we repurchased $100 million of common stock. At the end of the quarter, we had the entire $1.25 billion available on our revolving credit facility and approximately $513 million in cash. Our balance sheet is strong, and we are well positioned to invest in our business both organically and through acquisitions that will accelerate the implementation of our strategy.

Turning now to Slide six, I'll review in more detail our third quarter revenue trends. As mentioned earlier, our ARR was up eight percent in aggregate, and was up 11% organically on a year-over-year basis. The 11% rate excludes the impact of foreign exchange and our recent divestitures of Iron Solutions, Manhattan Real Estate Solutions and Construction Logistics. All three of these divested businesses had a recurring revenue component, but we're in areas outside of our strategic road map. Our nonrecurring revenue streams grew with hardware up 18% year-over-year and perpetual software growing 19%. Our hardware growth was driven by strong performance in civil construction, geospatial and agriculture. Our hardware growth contributed to perpetual software growth as some of our hardware offerings are bundled with perpetual software. From a geographic perspective, North American revenues were up 11%.

And Europe, revenues were up 18%. Asia Pacific was up five percent year-over-year, and the rest of the world was up 33%, driven principally by strong demand from the agriculture sector in Brazil. Next, on Slide seven, we highlight some of the key metrics we follow, and I'll start with ARR. While total company ARR grew 11% organically on a year-over-year basis, ARR, excluding transportation, grew at a mid-teens rate in the quarter. Net working capital, inclusive of deferred revenue continued to be negative, representing approximately minus two percent of revenue on a trailing 12-month basis notwithstanding an acceleration in purchases of component inventory during Q3. Research and development on a trailing 12-month basis was 15% of revenue and our deferred revenue grew 17% year-over-year. Our backlog at the end of the third quarter was $1.6 billion, up from $1.5 billion a quarter earlier and up over 30% year-over-year.

While growth in our backlog is an indicator of momentum in the business, it is also reflective of the shortages and extended delivery times that we are experiencing for many key components in our hardware products. Of our $1.6 billion in backlog, just under $340 million relates to our hardware offerings, up from about $100 million in hardware backlog a year ago and $38 million higher than the end of Q2. We expect supply chain constraints for many key components to extend well into 2022. Let's turn now to Slide eight for additional detail on each of the reporting segments. Buildings and Infrastructure revenue was up 12% on an organic basis. Revenue growth was strong in both our building and civil construction businesses, and organic ARR was up in the high teens in the quarter. Geospatial revenue was up 23% on an organic basis driven principally by strong performance in our core branded survey equipment.

Margins were up 60 basis points due to both revenue growth and operating cost control. Resources and Utilities revenue was up 23% on an organic basis. We experienced double-digit growth in each of our precision agriculture and positioning services offerings. Margins and resources in utilities contracted 330 basis points and were hardest hit by product cost inflation in the quarter. Financial results in transportation showed progression in a number of areas. Revenue was up three percent on an organic basis year-over-year, but grew less than we expected due to supply chain challenges in our operations and our customers' businesses. Margins expanded 410 basis points year-over-year. Turning now to Page nine for our updated outlook for the full year. We are raising our expectation for full year revenue with a new range of $3.59 billion to $3.64 billion representing growth for the full year in the mid-teens and single-digit year-over-year growth in the fourth quarter.

End market demand is even stronger than we thought it would be a quarter ago, but supply chain constraints will likely cause our backlog to remain at or above the increased levels from the end of Q3. ARR growth at the company level is trending as we anticipated, driven by strong bookings and subscription transition, and we expect organic ARR growth of greater than 10% in the fourth quarter and a strong entry point going into 2022. Gross margins in the fourth quarter are likely to be about flat sequentially with the third quarter. An increasing mix of software will have a favorable impact on sequential gross margin trends but this benefit will be offset by an anticipated decline in hardware margins. In aggregate, we now expect that the net impact of accelerating hardware cost inflation and our recent price increases will be modestly negative to hardware margins in Q4.

Building off our strong third quarter results, our outlook for operating margins continues to improve and we now expect operating margins for the full year 2021 will be above 2020. Operating margins in the fourth quarter of this year will likely be lower than the fourth quarter of 2020 driven both by higher hardware component costs year-on-year and by higher operating expense as opex was unusually low in 2020, and we are now ramping up investments against our strategy. Our outlook for full year earnings per share has increased to $2.61 to $2.69, representing growth of approximately 17% to 21% year-over-year. We continue to expect operating cash flow greater than 1.1 times net income and free cash flow greater than one times net income, reflecting the strong cash generative aspects of our business model.

I'd like to comment briefly on the outlook in the fourth quarter for our transportation segment. As Rob mentioned earlier, the leading indicators for this business are strong, with growing bookings of recruiting solutions, sequentially improving customer retention in our mobility business and increasing signs that our connected transportation strategy is resonating with customers. Nevertheless, factors related to the global supply chain and the extraordinary pressure on the transportation industry will negatively impact our business momentum in the short run. Our OEM business will be constrained by customer manufacturing challenges. And the aftermarket business will be slowed by the fact that trucking companies are reluctant to take assets off the road for technology upgrades at a time of high transportation prices and extraordinary asset utilization.

We believe that these constraints will be resolved over time, and we remain confident in the turnaround of this business, but the pace of improvement of revenue, ARR and profitability will be lower than we had earlier projected. With regard to 2022, we don't plan to give detailed guidance or our year-end earnings release, but we can characterize some of the drivers that we see now and the expected impact on reveNue, ARR and margins. Demand across our end markets remain strong, and we believe that strength will sustain at least through the end of 2022. Our customers need for digital solutions to optimize their workflows and has never been stronger, and these customers have the money and the desire to invest. We expect organic ARR growth to accelerate in 2022 and building off the momentum we have now and aided by continued model transitions and the growing sale of connected recurring solutions.

The supply chain environment remains our biggest challenge and that challenge is predicted to be with us for several more quarters. From a cost perspective, we anticipate that inflation in our hardware businesses will be sustained through the first quarters of 2022, driven both by higher component costs and higher cost of getting products shipped to our manufacturers and distribution centers. It is the goal of our pricing strategy to offset the impact of inflation on our hardware gross margins, and that pricing strategy continues to evolve. Rob referenced in his remarks, the investments we are making against our digital transformation. We anticipate that as we get through this investment cycle in 2022 and as our software businesses continue their transition to recurring revenue models, our operating leverage will be lower in 2022 than we expect over the longer term. The investments we are making in our digital transformation are at the core of unlocking the potential of our platform strategy, and we expect to end 2022 with business processes and systems that will accelerate our ability to transform the way we go to market and the way our customers do their work.

With that, I'll turn it over to the operator for Q and A.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Ann Duignan of JPMorgan. Your line is open.

Ann Duignan -- JPMorgan -- Analyst

Yes. Hi. Maybe you could talk a little bit more about the outlook for 2022, what you see across the different segments? I know you said in some of your opening comments that you do expect an infrastructure build path. If that doesn't happen, would that influence your outlook for 2022 at all for buildings and also geospatial and then the fundamentals in agriculture with we continue to see farmer sentiment decline on higher input costs, not just in the U.S. but also in Brazil. So maybe talk about some of the pluses and minuses that you're seeing out there as you look to 2022 and the end markets? Thank you.

Robert G. Painter -- President And Chief Executive Officer

Hi. Ann, thanks for the question. This is Rob. So I'll give you kind of a walk around the end markets, and some of the positives and some of the potential gotchas that we're looking out for. And the things we're looking out for that could be to the negative would be around supply chain inflation and labor availability. And of course, all those things correlate. On the geospatial and construction side, we see strength in residential and infrastructure work right now. We see on the commercial side, strength in submarkets such as data centers and hospitals. We believe there's indicators that the residential work will drive light industrial work. As it relates to the infrastructure bill and if it doesn't pass, we would see a benefit of the infrastructure bill really in 2023. So we really don't expect anything in 2022. Of course, there's a sentiment aspect that's hard to quantify, or -- but we remain that optimistic, and I spent some time in Washington a couple of weeks ago to that end.

And when I think about construction and I think about the labor side of it as a potential downside, the benefit of technology is that it can make an inexperienced operator, good or geospatial market, a robotic total station can turn a two-person operation into a one-person operation. On the ag side, what's positive are commodity prices, it looks like the harvest early data on the harvest would suggest lower harvest, which would hold up commodity prices and then we index that against the ending stocks or the inventory. As you said, absolutely input inflation, I think, is what's starting to dent the optimism on the farmer front. With that input inflation, though I look at the value proposition of the technology. So a spot spray technology can reduce the use of herbicide. And that's a really big deal or the variable rate can reduce the use of the other inputs.

And as we know, also has a positive environmental sustainability benefit. At a geographic level, the subsidy policies tend to be more consistent and higher outside the United States. So that tends to be -- provide the ballast, let's say, to the overall market. But we're absolutely paying paying attention to all of this. At some point, right, this is -- will have to have an impact. On the transportation side, what we see is strength in spot pricing. And I mean, we've even seen it from our own rates on transportation, as David talked about, where they've gone up. a downside of driver availability in the market and availability of trucks coming out of the OEMs. So carriers are having trouble actually adding capacity. And when I think about a technology lens on that. An average driver effectively uses around seven hours of their clock per day.

Our strategy is to drive a more connected supply chain. That means dynamic schedules with the shippers and the receivers to better optimize waste to driver hours. We provide better routing and navigation solutions to create efficient trip management. And fundamentally, we want to get a more accurate order load information for the customers. And that can increase the network optimization. So there's puts and takes as always. And we think that technology has a role really in almost any market condition

Operator

Your next question is from Jason Celino of KeyBanc Capital Markets. Your line is open.

Devin Au -- KeyBanc Capital Markets -- Analyst

Hi. This is actually Devin on for Jason. Thanks for taking my questions. First one I have is on construction. Just wondering if you can provide an update on, I guess, the builder and viewpoint, I know that you guys rebranded. But any color on the AR growth and growth drivers there would be helpful.

Robert G. Painter -- President And Chief Executive Officer

Hi. Thanks for the question. So the combined ARR growth between the two businesses was plus 17% year-over-year. So another great quarter of execution between the two businesses. As you noted with the rebranding, we are especially optimistic around the Trimble Construction one offering, we converted over 1,000 customers to the Trimble Construction One offering sold in dozens of new logos onto the offering in the quarter. And the bookings that creates ARR later down the road, but the value proposition and the awareness from the customers is quite encouraging. And we've seen that in the bookings for some time now and which now starts now plays through the -- through the ARR expansion.

Devin Au -- KeyBanc Capital Markets -- Analyst

Great. That's helpful. And just one more and staying on construction and that we encouraged to see the Connected Construction One platform. But I just want to ask, are you -- in terms of like market opportunity, are you still mainly displacing these legacy systems and paper-based processes out there? Or are you seeing meaningfully more interest from contractors and owners looking for a more connected solution?

Robert G. Painter -- President And Chief Executive Officer

There's both. It's a good question. From a market -- overall market perspective, really the secular opportunity in construction technology. And by the way, I'd say this in our other end markets as well, is that these markets are large, they're global they're underserved and they're underpenetrated by technology, so them to digitization provides a value proposition that delivers productivity, quality, safety, efficiency, transparency and environmental sustainability. So there's a positive catalyst for technology to be adopted. And at some level, yes, that is replacing paper-based systems that exist or, let's say, just the mental based systems that exist. And we are seeing demonstrable interest from customers in the Connected Solutions that we offer and I've had a chance to talk to a number of the customers personally. Some that are shown as how they're already taking our technology and connecting the various solutions to improve their workflow.

And one of the things they do is not only connect Trimble workflow, but in a Trimble environment that can provide actually that common data environment, we can connect in an open and really agnostic way to the other technology that our customers use. Our customers operate, as you know, in the construction industry is fragmented Therefore, the technology tends to be a bit fragmented as well. And so our ability and approach to connect Trimble and non-Trimble solutions is very up of mind for customers. And of course, COVID has also been a catalyst from a digitization perspective, so much of what we do can uniquely connect the work in the office and the field. that connects the hardware and the software and ultimately, that physical and digital.

Devin Au -- KeyBanc Capital Markets -- Analyst

Great. Great. That's great to hear. Thank you.

Operator

Your next question is from Rob Wertheimer of Melius. Your line is now open.

Rob Wertheimer -- Melius -- Analyst

Hi. Thank you. And Rob, Thanks for that answers actually like to follow up on a couple of there points you were making there. Just on the future of digitization and construction. I wondered just there's a very large opportunity. Do you feel like there's an acceleration? Is there a tipping point where were visible in the next two or three years or ex time frame where you have to be digital or you're not there? Just a general sense on how fast that market is moving. And then do you think it's coalescing around two or three sort of platforms yourselves being one of them, and that's kind of the construction one idea? Or is that too aggressive a statement and it's still a hodgepodge of a bunch of different assets. I may just asking you to assess the platform dynamic as well. Thank you.

Robert G. Painter -- President And Chief Executive Officer

Hi. Rob, thanks for the question. From a tipping point perspective and an acceleration perspective, I think the numbers would prove the acceleration of the adoption of technology. And if we were to get an infrastructure bill, which, by the way, we talk about that in a U.S. context. But we see a construction-led recovery really globally in many markets. And so HS2 is a really nice project in the U.K., Grand Paris and Paris, the rail project is expected to be a very large project. There's large projects happening in Saudi and Australia continues to have some big development. So we see the fundamentals and the macro is providing an ability to accelerate it. I think really move to I'd say digitization. COVID, I really do feel has accelerated that kind of perhaps hasn't inflected so many of our customers were unable to actually go out to the field like they used to be able to do or they realize the need to be cloud connected and cloud-enabled when they weren't going to their offices as frequently.

And we think that's helped us drive more bookings in the business to the cloud offerings. And as it relates to a tipping point, that's a really good question. It's a bit of a crystal ball. I think one of the catalysts that could create a tipping point would be if we see more more of this driven from owners. And I'll say as well as, I'll say as well as regulators and maybe I really mean policy when I say that. So from an owner perspective, that's actually the premise of why we did the e-Builder acquisition because you fundamentally has the most at stake on the projects late or over budget. Of course, it's the owner, and so we help them manage their capital programs. from a policy and a regulatory perspective, where we have a point of view as we think take the U.S. infrastructure bill, as an example, I mean, this is a generational opportunity to increase the competitiveness of the infrastructure in the United States.

And we can deliver that infrastructure 20%, 30% cheaper through the use of technology. So it just makes sense. And so if more of this is if we can increase the level of awareness I'm certainly an advocate that there's a policy measure here or certainly encouragement measure, and that's why I talked about that Digital Construction Management Act because it provides an incentive for DOTs to adopt technology. So I'd say we're all staying tuned for that one. If there's something that sort of fundamentally creates an acceleration on that on the tipping point part of it. And then you asked about platforms, Rob, and on the platform side, I think it's logical to think that there would be some coalescing around a few platforms. I mean, as you said, the industry is rather fragmented. We're not the only technology platform out there. Actually, I think there needs to be interoperability between those technology platforms, and that very much shapes how we build our technology. It is an underlying fundamental belief that we have.

Rob Wertheimer -- Melius -- Analyst

Thank you.

Operator

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

Jonathan Ho -- William Blair -- Analyst

Hi. Good afternoon, I wanted to maybe start out with some of the supply chain issues. Can you talk a little bit about maybe what the increases in lead times look like for your customers? And have you seen any potential losses just given the extended backlog and potentially delivery times?

David G. Barnes -- Chief Financial Officer

Hey. Jonathan, it's David. The lead times vary a lot by product -- But historically, our lead times have been very short, measured in a few days, and there are many times that. So weeks and in some cases, many weeks or a few months, and sort of that's the math of the backlog that you're seeing. As far as the competitive dynamics in a very few isolated cases, we can identify where we've lost business to a competitor that can supply more quickly. Typically, they are competing at the lower end of the market. And in some cases, those customers have come back. But I think the -- generally, our competitors are experiencing at least similar pressure to what we have. And we don't believe that this has had an adverse impact on our share trends. In fact, in our hardware businesses where we can see numbers that are published by our peers or competitors, there's evidence in many of those segments that we're that we're gaining share.

We also haven't seen a meaningful amount of orders being canceled because the lead times are extended. So it's something we're watchful for. We're lucky, as Rob said in his comments, have a really capable operations team that has done a remarkable job getting supply in this very difficult environment.

Jonathan Ho -- William Blair -- Analyst

Excellent. And then just as a follow-up, just given the strength in your ag business, I'm wondering, are you seeing a change in the types of products that you're selling into that market, especially relative to historically when it was sort of focused on guidance systems. Are you seeing sort of that broader digital transformation happening in this segment as well? Thank you.

Robert G. Painter -- President And Chief Executive Officer

Hi. Jonathan, it's Rob. I'll take that one. I'd say the product mix is relatively stable at the moment. What I would say we're doing a better job of is connecting the software and the hardware and the correction services into the offerings that we have. So more of that bundling at a point of sale and making ourselves easier to do business with. And we have picked up some new OEM customers along the way. And then we've seen some strength in particular strength in various geographies. So in the quarter, Brazil was very strong for us. Russia was also very strong for us. So there's -- I'd say there's pockets, geographic pockets where we're able to increase the penetration. But in terms of a discernible shift in the overall mix of the portfolio, not really at this point.

Jonathan Ho -- William Blair -- Analyst

Great, Thank you.

Operator

Your next question is from Jerry Revich of Goldman Sachs. Your line is open.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, Good afternoon, Good evening. I was wondering, Rob, if you wouldn't mind expanding on the recurring bookings growth you folks outlined in your prepared remarks in transportation. I think it's the most positive to transportation in a while. Can you just unpack that? What part of the business is driving the recurring growth? And what do the churn rates look like on on the legacy business where we're working through the headwinds? Thanks.

Robert G. Painter -- President And Chief Executive Officer

Sure. Hi. Jerry, thanks for the question. Within the transportation business, I've historically talked about three legs on the stool, the technology stack. The first being that we provide mapping, routing, navigation engines second, that we prove the back-office technology for trucking companies; and third, that we provide the field mobility tools for companies. In terms of the booking, and then those are the three historic legs of that stool. And then over the last couple of years, we've moved as well to address the shipper side of the market, whereas historically, the strength is on the carrier side. So on the carrier side of the business, where we see the bookings growth is in a couple of places. So first, in that back-office ERP systems we call the transportation management system, and we're moving that business to a recurring model. So there's a model conversion that's happening in there. And we have seen evidence that we're increasing the size of the addressable market, which means we're reaching some customers that we hadn't previously reached.

And that's translating into 20%-plus bookings growing year-over-year basis in that part of the business. What we're seeing as well on the mobility side, which is really more the ELD part of the business as we have seen some life there, both there are two things: One, increasing penetration in existing customers as some of our existing customers, actually, many of them are adding capacity given the market. In fact, they would like to add more capacity in many cases, aren't able to actually get the vehicles or the drivers to do it, but that's one area where we see growth; and the others is we do see some logos coming back to us, which has been a really good sign for us. Still a long way to go. But I'm just liking what I'm seeing from the team and the pace of the team and the trajectory in that Canadian ELD certification was a nice proof point that we're not just talking about these things that we actually also are delivering.

That mapping routing navigation business has had many, many years of double-digit recurring revenue growth, which means bookings continue to grow strong and they continue to do a great job on quarter in and quarter out and added up, and that got to the commentary in the script. You asked, Jerry about churn rates as well?

Jerry Revich -- Goldman Sachs -- Analyst

Yes. Please. Yes.

Robert G. Painter -- President And Chief Executive Officer

Yes, on the churn rate side, I'd characterize it in net retention and net retention was above 100% in the quarter, which is obviously a great sign for us.

Jerry Revich -- Goldman Sachs -- Analyst

It's really nice to hear about the inflection there. And in Buildings & Infrastructure, I know you have really good visibility on the prospective pipeline and bookings. Can you talk about if you've seen an acceleration in those lead indicators that you track for e-Builder and Viewpoint given the labor shortages, et cetera. Could we actually see accelerate ARR further from the strong rate that we're running at in 3Q?

Robert G. Painter -- President And Chief Executive Officer

Yes, actually, we do think we can accelerate the level of ARR growth, actually across the company and then that being the biggest contributor really to that growth. It absolutely is something that we have a line of -- a reasonable line of sight to the current bookings growth. As we plan the business forward, we'll think about in any given quarter or a year for that matter. What's "in the bank" and then what's the go get, when we think about that go get, then you can measure the pipeline you have and then you measure the qualified leads you have against that. So you kind of just keep working backwards from that equation. And then do you have the horsepower to go and positively affect the pipeline and to turn it into a booking, which eventually turns into the revenue. In addition, Jerry, another catalyst for us coming into next year is our structures business, so the Tekla business, the steel concrete business. So that in the summer, we stopped selling perpetual licenses. And so -- in fact, we sold more perpetual this year than we had anticipated. And now that we're off the almost entirely off the perpetual that just by the math, will provide a catalyst for ARR or ACV bookings, which will turn into ARR. So that alone would be a catalyst to ARR growth in that business looking into next year.

Jerry Revich -- Goldman Sachs -- Analyst

Thanks, Rob.

Robert G. Painter -- President And Chief Executive Officer

You're welcome.

Operator

Your next question is from Weston Twigg of Piper Sandler. Your line is open.

Weston Twigg -- Piper Sandler -- Analyst

Hi. Thanks for taking my questions. Actually, I have two allow it. First, just the Geospatial segment. has been growing really strongly. And I'm just wondering if you could help us just get a feel for those trends through next year. How sustainable is this rate of growth?

Robert G. Painter -- President And Chief Executive Officer

Hi. This is Rob. Thanks for the question. Big kudos to the Geospatial team, the latest innovation that went to market in the third quarter was the MX 50 mobile mapping system, and that's on the heels of just really many innovations over the last few quarters between the X7 laser scanner, the R12 GNSS receiver, a really nice run for this. The business has, I'd say, a pretty good amount of backlog associated with it. As we look forward into 2022, we think that we do have the wind at our backs and that we can continue to grow the business. now with stunning growth that we've had in that business in 2022 or 2021, excuse me. No, I don't see that, that hadn't progressed as we said a few years ago that this was -- we think thought of it as our most mature of the businesses that we have. And it has proved more than once lately to be one of the fastest growers within Trimble on a year-over-year basis. So really a lot of excellent innovation -- and as well, our go-to-market team has just done an outstanding channel management around around the world. And I would expect that to temper back somewhere closer into the company average of the six percent to nine percent organic range as we go into next year. I would take that as a starting point.

Weston Twigg -- Piper Sandler -- Analyst

That's very helpful. Thank you. And then the other question I had, you mentioned the COP26 conference, the discussions around there. and with all the severe weather events this year and how it's impacted your customers. I'm wondering if you could maybe discuss just some of your broader revenue opportunities with respect to climate change adaptation, specifically thinking about some of your agriculture construction infrastructure customers and maybe outline broadly speaking, how that revenue opportunity could ramp?

Robert G. Painter -- President And Chief Executive Officer

Thank you for that question. So I'm excited, and I'm actually quite inspired by the ability for Trimble to play a fundamentally positive impact -- or fundamentally positive role and impacting climate change. Now the truth of the matter is that our products and our technology has had a positive environmental sustainability benefit for as long as we have been around, and it's been a byproduct of the productivity and efficiency that our customers generate. And what I see as an opportunity is that comes more and more to the forefront. In some cases, it's as our customers have more reporting to do themselves. Whether they realize that now, some of them do or whether they don't, we see that coming, and then we see an ability to be able to move into that space. If you take agriculture as an example, we do have a small business in ag that essentially runs a carbon marketplace.

We get calls from customers or potential customers asking for help and certifying the offsets that they're buying. So think about our -- we tend to talk about our agriculture business, but we also have a nice forestry business. These are two places that are hugely important in this conversation. And so as big companies are making their own commitments and buying offsets, they don't want to buy bad offsets. And so we're encouraged by the types of calls that we're getting because it's giving us conviction of where we take our product road map to positively impact us. I mean, if I think about the construction space, our structures business, so the steel part of the structures business, we did an announcement a couple of weeks ago of something that I think is pretty compelling as we can -- as we continue from a from a design perspective, essentially to design for sustainability to understand the carbon load that a building has during that design and engineering phase.

For many years, we've had a predesigned product to help you understand, let's say, the energy consumption profile of a building. And as the users of the buildings and let's say, if there becomes regulatory pressure on this, to design with carbon in mind, the constructable models that we provide at Trimble have a profoundly positive ability to impact designing and maintaining and operating with sustainability in mind. So we're actually putting some resources to this because I see and all of us at Trimble see, our Board sees some really interesting opportunities that at some point, we'll turn into commercial opportunities. Now do they turn into commercial opportunities is something discrete and separate or are they part of the existing technologies we have. I would say there, I don't know. But boy, you follow what's going on. And you've got -- I've got to believe that there's some material business for us to have here.

Weston Twigg -- Piper Sandler -- Analyst

That was helpful. Thanks for all the effort in that for category for sure. Thank you.

Rob Wertheimer -- Melius -- Analyst

Thank you.

Operator

Your next question is from Chad Dillard of Bernstein. Your line is open.

Chad Dillard -- Bernstein -- Analyst

Hi. Good evening, guys. So I actually want to go back to Trimble Construction One. And I was hoping you can give a little bit more context on kind of where it belongs in the product portfolio. I guess my first question is just on just how much overlap does it have versus your current product offering? And then maybe you could talk about at least like your initial sales, whether you're seeing more come from conversions versus new customers. And then secondly, to what extent does this new platform expand the opportunity to bundle?

Robert G. Painter -- President And Chief Executive Officer

Chad, so this is Rob, I'll take the question. So where to start, our Trimble Construction One offering essentially right now can take what we do at Viewpoint. And at Viewpoint, years ago, we moved from selling, I'll call it, an ERP-only, an office-based solution to moving to selling a combined team and field solutions. I think project management and field mobility tools, and we call it Viewpoint One and then we called an OTF office team field offering. So it moved from a point solution to a bundled Viewpoint solution. And now that next step is in the Trimble Construction One with the first release of it. That brings in many aspects of our MEP business of mechanical, electrical, plumbing business, where we're able to bring in a detailer and estimate our workflows into the product offering. And then from there, we have a basis where we can continue to expand across other architectural and engineering workflows and products that we have.

So by and large, it's taking what we do already and having a better packaging around that, making it easier for our customers to consume the technology. From a technology perspective, it's better integration, tighter integration between the solutions that we have. Our customers have been asking for this. And so we're really excited to be able to start delivering upon it. I'd say it's just the start. It's Version one of Trimble Construction One. There are many other capabilities that we believe we can bring into that, both from a civil perspective as well as a vertical construction perspective. And the nature of the conversions we have thus far are predominantly with the existing customers and moving them over. But we did get -- I think there's a few dozen new logos during the quarter on Trimble Construction One. It's very much a persona-based growth platform. We think about personas and architectural engineering persona, we think about the contractor persona.

We think about an owner persona. And then we'll -- as we migrate over time, we'll be able to get more and more, I'll say, specific and targeted to delivering construction -- Trimble Construction One to those individual persona. So I'd really say the start of much more to come. And the more that we connect the data, the users and the workflow across this, that begets the opportunity to move into richer data AI opportunities. And there, it gets then another level of exciting. So the more we can connect what we've got for our customers, the more that will create solutions down the road.

Chad Dillard -- Bernstein -- Analyst

Great. Thanks for that. And then just second question, more so on your hardware business. Just trying to understand the progression of price cost. I mean maybe you can walk us through what the price cost balance was 1Q, 2Q, 3Q, I think you said 4Q it's negative? And then, I guess, most importantly, where do we go here this year? If I remember correctly, there's a portion of your business that is under kind of like longer-term contracts? And when do those anniversary get up for renegotiation?

David G. Barnes -- Chief Financial Officer

Hi. Chad, let me give you some perspective and all sort of ground my comments in what we mentioned last time in this very uncertain world, we were estimating that for the full year 2021, we'd have inflation in aggregate of about six percent of our $600 million in COGS, so that's $36 million. We're definitely running north of that. We're probably about $10 million more in product and freight inflation than we were anticipating. And we've adopted our pricing strategy all year in response to our best guess of where things are. You're right, there's some latency in when you can make a decision and implement the strategy. And it really differs by business and customer. In some cases, we can implement a price increase by smarter and less discounting. In some cases, there's a surcharge that's possible. In some cases, you have to wait for a list price. But I would say our pricing momentum has kept up with the inflation outlook that we started with, but we're running behind because inflation is hotter than we believe.

So your understanding is correct, we're behind inflation now, even though the -- pretty much the full impact of our price increase came through in Q4, will be modestly negative, not hugely modestly negative. Going forward, it's a very tough world to get cost inflation. And we think it's going to get better soon. We're optimistic and won't get a lot worse. We have some more work to do on the pricing front. But I would say, in aggregate, it is still our view that over time, we can offset the inflation cost impact with pricing. It's just going to take us into next year to do that.

Chad Dillard -- Bernstein -- Analyst

Thank you.

Operator

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

Kristen E. Owen -- Oppenheimer -- Analyst

Hi. Good afternoon. This is Kristen on for Colin. Just wanted to follow up on some of the commentary around the connection scale and sort of the acceleration of that spend into 2022. Just wondering if you can give an update on sort of the internal processes that you're going through? Where you stand in those? And any metrics around identifying what that opportunity set is based on the multiproduct customers.

Robert G. Painter -- President And Chief Executive Officer

Hi. Kristen, this is Rob. From, let's say, to put context around where we're spending the digital -- our own digital transformation, and we believe through that digital transformation that, that will in turn lead to an ability to scale our revenue growth, particularly the revenue -- sorry, the recurring revenue growth and the growth of bundled offerings. We do believe there'll be an infrastructure bill that comes. And even if it doesn't come, we believe there is a fundamental ability for us to play a positive impact within infrastructure to have be built better, faster, safer, cheaper greener. So we have been putting more resources to that, which we in turn think will will help us grow the business. We take both a short-term and a long-term view when we come to extend the questions around how we actually come to that answer and we believe it's the right thing to do for the business. But I think you only answered half of your question. So sorry, tell me what else we can help with.

Kristen E. Owen -- Oppenheimer -- Analyst

The internal processes where you are in that process of identifying where you can create synergies internally, how you're going to market more efficiently? Just sort of connecting the internal data backbone and update there would be really helpful.

Robert G. Painter -- President And Chief Executive Officer

Yes. So from the internal perspective, actually, I like the progress we've made. We were through our annual strategy exercise as we do each of our major franchises have defined their what connect and scale means to them and our industry cloud strategies or platform strategies. The relationship with Microsoft, we think, is a really big deal for us and where we take the business going forward. We've got demonstrable success on digital transformation efforts with some of the underlying plumbing that we're putting in place. So things like common identity, licensing entitlement engines, which really are just, I'll call it, the must-haves table stakes for where we're -- for where we're going as an organization. Most of our businesses have identified where they see cross-sell, upsell opportunity within, I'll say, common customer personas. So I like the work that we're doing in preparation. I wish it could come faster. I haven't met these things do have a bit of a natural course they take.

Kristen E. Owen -- Oppenheimer -- Analyst

And then if I could, the follow-up to a previous question related to sort of the hardware sales versus ARR growth. Just wondering, given the strength that you've seen in hardware over the last, call it, year or so, how we should think about that as a precursor for ARR growth? Thank you very much.

Robert G. Painter -- President And Chief Executive Officer

Well, most of the ARR have is independent of the hardware, where I would say there's a potential precursor as we talked before about our machine control and guidance business and civil construction that obviously has hardware and software associated with it and where we've moved to a recurring offering there. So to the extent that, that inflects and we see more adoption of that, and we have been seeing more adoption of that regardless of how the accounting is treated on it from a practical perspective, it does become more recurring and have an ability to drive that. In addition, the more we connect the hardware and the software that we have overall there, I think we see a large installed base of customers who have our hardware that would benefit also by connecting to let's say, to office software to combine with the field hardware. So I do think there's an opportunity there, Kristen.

Operator

Your next question is from Meta Marshall of Morgan Stanley. Your line is open.

Erik Taylor Lapinski -- Morgan Stanley -- Analyst

Hi. This is Erik on for Meta. Thanks for squeezing in. Maybe just a follow-up on that last question. When we think about some of the incremental investment you're planning over the next year, has going through this process of connecting more of the assets that whether they were acquired over time or kind of built separately at all impacted your appetite for M&A? Just wondering if that is a factor.

Robert G. Painter -- President And Chief Executive Officer

No, I'd say it hasn't impacted it at all. We will look at acquisitions where we think it can accelerate the strategy and have a positive impact on connect and scale and building out our industry platforms. We also think more of these days is about partnership. And I think Microsoft is a good ample of that. There's multiple paths to get to this strategy.

Erik Taylor Lapinski -- Morgan Stanley -- Analyst

Thank you. And maybe if I could squeeze in one more. You talked about the high-teens growth in Viewpoint, e-Builder, but when we look at overall subscription growth somewhat flattening organically. Can you help us understand what areas of subscription grew somewhat slower? Is that mostly related to the transportation segment? Or are there any other factors?

Robert G. Painter -- President And Chief Executive Officer

Transportation segment.

Erik Taylor Lapinski -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

Your next question is from Ed Maggie of Berenberg Capital. Your line is open.

Ed Maggie -- Berenberg Capital -- Analyst

Hi. guys. This is Ed Maje on for Galmounda. My question relates to the Microsoft partnership with Construction One, how much of this is technology partnership versus go-to-market efforts? And then what is the estimated timing for GA for this? And would love to hear some examples of new products that could follow after? Thanks.

Robert G. Painter -- President And Chief Executive Officer

Hi. This is Rob. I'll take the question, and thank you for the question. Both technology and go-to-market from a -- and then from a GA perspective, on the -- on both of those intersecting. I think next year, mid- to late next year would be the time to think about GA. And then before then from a technology perspective, we get -- I'll say incentives and help to move technology that we have. So to help us accelerate the velocities and the development efforts. So we get help on the technology -- some help on the technology side there. Nature of relationship does give us a better pricing on the cloud cycles that we consume. And then yes, the idea is to build the Construction Cloud powered by Azure. And in doing so, we believe there are some unique and novel things that we can bring to that construction cloud and just think about the breadth and depth of what we do at Trimble.

And now map that at a go-to-market perspective. I mean you've got tens of thousands of sellers between Microsoft and the partner network on top of the sellers that we have on a global scale and you quickly get a sense of why I'd be -- I am very excited about the opportunities to help us with reach and scale as a result of this relationship. And we do think that there's some really interesting technologies to combine between the two companies. Let's say, stay tuned for more on that in time.

Ed Maggie -- Berenberg Capital -- Analyst

Excellent move there. Thanks for the questions. And congrats on the quarter.

Robert G. Painter -- President And Chief Executive Officer

Thank you.

Operator

Your next question is from Rob Mason of Baird. Your line is now open.

Rob Mason -- Baird -- Analyst

Yes. Good evening. Thanks for taking the question. I'll try to be real quick here. I just wanted a clarification first. The commentary around Connect and Scale investments for this year, could you confirm -- did you say that you thought you would be back on model with respect to incremental margins in 2023? Or did I hear that correctly?

David G. Barnes -- Chief Financial Officer

Rob, it's David. So I think I'd characterize our comments as sort of broad outlook to 2022, a little early to talk about 2023. But just to add a little more color. We are in an investment mode in the areas that Rob talked about in digital transformation in autonomy and our major accounts go-to-market activities, which are all really critical to take advantage of the strategic opportunity we have. And those are likely to result in opex growth next year ahead of revenue growth. So I think we'll have -- if you look back to the 2018 investor conference and the objective stated was operating leverage in the 25% to 30% range. I think we'll be in that range, but in 2022 at the lower end. And then I think it's logical to expect that we'll have some of the positive benefit of that beginning in 2023. But I'll be cautious about making a firm prediction now.

Rob Mason -- Baird -- Analyst

Sure, sure. And maybe the follow-on to that is, there was some news in the quarter around where you do have some autonomy exposure, a customer they're planning to ramp some of the technology they leverage from you. And how should we think about when that does happen, if it happens when -- Is that more step function? Or is that more linear with, I guess, their volumes around that?

David G. Barnes -- Chief Financial Officer

I'd say more linear with volumes.

Rob Mason -- Baird -- Analyst

Okay. Very good.

Operator

No questions at this time. I would like to turn the call back to Michael Leyba for further comments.

Michael Leyba -- Director Investor Relations

That concludes our call, everyone. Thank you very much, and we'll talk to you next quarter.

Robert G. Painter -- President And Chief Executive Officer

Thanks, everybody.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Robert G. Painter -- President And Chief Executive Officer

David G. Barnes -- Chief Financial Officer

Michael Leyba -- Director Investor Relations

Ann Duignan -- JPMorgan -- Analyst

Devin Au -- KeyBanc Capital Markets -- Analyst

Rob Wertheimer -- Melius -- Analyst

Jonathan Ho -- William Blair -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Weston Twigg -- Piper Sandler -- Analyst

Chad Dillard -- Bernstein -- Analyst

Kristen E. Owen -- Oppenheimer -- Analyst

Erik Taylor Lapinski -- Morgan Stanley -- Analyst

Ed Maggie -- Berenberg Capital -- Analyst

Rob Mason -- Baird -- Analyst

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