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Trimble Navigation (NASDAQ:TRMB)

Q2 2012 Earnings Call

August 1, 2012 04:30 PM ET

Executives

Willa McManmon - Director, IR

Steve Berglund - President & CEO

Rajat Bahri - CFO

Analysts

Jonathan Ho - William Blair

Jonathan Goldberg - Deutsche Bank

Brett Wong - Piper Jaffray

Richard Valera - Needham

Paul Coster - JP Morgan

Eli Lustgarten - Longbow Security

Andrea James - Dougherty & Company

Operator

Good afternoon my name is Marvin and I will be your conference operator today. (Operator Instructions). I will now hand the call over to our host, Ms. Willa McManmon. Ma'am you may begin.

Willa McManmon

Thank you for joining us. I am here today with Steve Berglund, our President and CEO and Rajat Bahri, our CFO. Before we begin, I would like to remind you that the forward-looking statements made in today's call and the subsequent Q&A period are subject to risks and uncertainties. Trimble's actual results may differ materially from those currently anticipated due to a number of factors including the competitive nature of the market place, the condition of the worldwide economy and other factors detailed in the Company's Form 10-K and 10-Qs or other documents filed with the Securities and Exchange Commission.

With that I will turn the call over to Steve Berglund.

Steve Berglund

Good afternoon, second quarter results remained on track despite a more challenging environment. Coming into the quarter we anticipated slower European demand and a non-favorable exchange rate environment. In addition, to the already low level of activity in residential and commercial construction. The change that occurred within the quarter was the intensifying North American drought which had some impact on agricultural sales. Despite these pressures our results remain above the expectations established at the beginning of the year. All acquisitions boasted overall revenue growth, organic growth remained strong and exchange adjusted was in the mid-teens.

Margins also continued to improve a non-GAAP operating margins for above 20% for the second consecutive quarter. We currently expect year-to-year revenue growth in the third quarter of around 19%, while the nominal growth rate is lower than the first half rate because of acquisition effects. We generally expect underlying performance to remain consistent with the first half. This expectation is based on two assumptions, one is that the euro centered crisis remains relatively contained to Europe and does not transform into a major macroeconomic contingent scenario. And the others that uncertainty related to the euro and the U.S. election doesn’t freeze investment decision makers into activity as they await greater clarity.

Our markets remain workable although the other states robustness are variable across product categories and across regions. Engineering and construction performance is currently being driven by heavy highway products which are demonstration strong growth as adoption rates of technology accelerate. Commercial and residential construction is not a meaningful source of growth although the picture on future prospects seems to be gradually brightening in North America.

Survey in other GeoSpatial products from the second quarter did not match the growth of the first quarter although we expect growth will improve in the second half. Our expectations for E&C on the second half assume a similar scenario to the first half with strong, heavy and high demand at generally negative environment in Europe, no meaningful recovery in North American, residential and commercial construction and generally workable conditions in other regions.

With this solution segment generated meaningful growth with the contributions from both agriculture and acquisitions. GIS was comparably flat because of revenue recognition of deferrals. Agricultural results held up despite the severe drought conditions in North America. While North America continued to produce credible year-to-year growth, we saw much stronger growth rates in agriculture in South America, Russia and China. While North America is still our most significant region, the strong performance from other regions partially mitigates the exposure to the effects the drought may have on North American demand.

Other mitigating effects included diversifying product line. For example, information management products while still generating relatively low revenue grew over 40% year-to-year. Our expectations for the field solution segment in the third quarter are shaped around drought related uncertainty and the affect in farm confidence and aggregate demand.

Given the forecast uncertainty we have established an outlook that is quite conservative against historical standards. At the same time we expect other elements of the segment to provide upsize which allow us to maintain an overall positive expectation. We also expect any drought effects to be of comparatively short duration without lasting effects on the farm economy and do not expect them to affect normal seasonal buying patterns as long as weather patterns assume a more normal patter later in the year.

The mobile solution segment continues to make a major contribution to the year-to-year improvement in Trimble quarterly results. Although the revenue increase continues to be dominated by the PeopleNet acquisition, we are seeing revenue and profitability contributions from other businesses within the segment as well.

Key to the improvement is the redirection of portfolio towards vertical markets which allow competitive differentiation, a higher value proposition and higher gross margins. Our third quarter mobile solutions outlook assumes continued workmanlike progression in the segment, combining revenue growth and significant year-over-year margin expansion. Short of a serious economic dislocation this segment should be more resistant to the effects of any macroeconomic recession scenario because decisions to make commercial plays more productive our long-term investment decisions, they are tend to be made independently of the economic cycle.

Looking forward to the next six months, we have no particularly original insight as to what may happen at the macroeconomic level worldwide, we are generally taking a conservative view and are selectively constraining costs. Our planning basically assumes the world remains is current muddling through status for some time with Europe on the sidelines and the U.S. producing relatively and it may grow up.

Although we would definitely prefer to operate in a robust worldwide economic, we believe the current scenario still provides us with the potential to put-up meaningful double-digit revenue growth for the foreseeable future coupled with margin expansion. While we are exposed to the economic cycle, the nature of our business gives us some ability to resist becoming an automatic victim of a downside economic scenario, at least short of 2008 style cataclysm; this derives from a number of characteristics.

Perhaps the most obvious observation relates to the diversity of the portfolio in terms of geography and market served. Trimble has developed in the last five years to the point where it is potentially a mistake to use conditions in any single region or market as a surrogate for the entire company.

Our five largest businesses and heavy civil construction building construction, geospatial, agriculture and transportation and logistics are approaching rough parity with each other in size and has historically operated to some extent out of phase with each other in terms of response to the economic cycle.

For example in 2009, when construction was a relative disaster, agriculture remained buoyant. Extending our businesses internationally has enabled us to tap more effectively into those economies that are going anywhere in the world. In the current case we believe we can mitigate at least some of the European malaise by aggressive pursuit on stronger markets in South America, Asia, Africa, Russia and the Middle-East.

A recent example of our commitment to this address of internationalization is the opening during the quarter of Trimble sales and service office in (inaudible) Ghana in support of the potential significant market in West Africa over the next five years.

Another concept supporting a recession resistant hypothesis is that virtually all of our businesses provide productivity solutions not additional capacity, even as economic conditions require our users to keep tight constraints on their equipment capacity we can still solve productivity solutions for the existing equipment population.

In fact we believe one of the lessons learned by our users during the last recession and the subsequent slow growth economy is that the application of technology is becoming the difference between success and failure; we are encountering growing evidence that our technology is moving into the mainstream which is likely to drive deeper market penetration and follow-on growth.

Although this is true for all of Trimble’s business the clearest evidence is in construction. We have seen recent significant evidence that the center of decision-making for technology is moving from a managers of operating functions within construction contractors to the C level executive.

This reflects the recognition of the source of both competitive advantage and profitability in construction. We increasingly be centered on integrated technology. Technology is moving from a good to have to a must have category. Another change that has occurred over the last few years that makes us potentially more resilient is the extension of our soft definition to include more conceptual market scope. Although this market extension has taken place in incremental steps and has not been particularly explicit, it has provided us with significantly more degrees of freedom to exploit under any economic scenario. The central concept across all of our businesses has been to move from a singular focus on task productivity to a more comprehensive view that incorporates our historical strength and providing point solutions into a more comprehensive solution that encompasses this productivity of entire work processes.

This provides us with significantly larger addressable market as well great opportunity to sell at higher value bundle at enterprise level. This long term initiative has generally been framed in terms of such as the connected construction site or the connected farm. In developing this concept we have deployed significant capital over the last few years to make a number of software acquisitions including Punch Telematix, Tata, AutoComp, Mobility Telematics, Tekla, PeopleNet, Plancal, SketchUp and WinEst.

They have been concentrated in the E&C and mobile solution segments and have extended our ability to provide a complete user solution. Their integration into Trimble has gone well to very well on multiple fronts and as a group their exceeding the financial expectations we held at the point of acquisition.

We have had virtually no loss of management or key personnel, the early market responses demonstrating the existence of significance synergies associated with providing more comprehensive capabilities and we are converging at more effective long-term product platforms. These acquisitions enhances our ability to credibly make the key account sale as well as raising the bar competitively.

These acquisitions also provide a key to producing additional margin expansion in the next few years. The formulae is relatively straight forward, we have seen 3 to 4 points of gross margin expansion over the last few years largely because of increasing software content that has not yet been fully converted into an equivalent operating margin expansion.

Arithmetically this results from our R&D, marketing selling and G&A expenses being at roughly 35% of revenue against 32% 2007 and 2008 which was negatively by the recession in 2009 and 2010.

Our current higher relative cost status is resulted from the acquisition process which is generally involved bringing in acquisitions with higher than average gross margins but with a accompanying higher than average expense loads. Well the background of the drawing cost of compliance is meaningful and permanent showing an improvement, over the next few years we have significant scope for leveraging these acquisitions into higher revenue without a corresponding increase and expenses.

It will not be a step function process but it is consistent with the success we have historically showed in producing significant cost leverage. Overall the environment is producing significant uncertainties that may remain with us for some time. Despite this ambiguity we believe we retain the capability to succeed whatever the environment. Let me turn the call over to Raj.

Rajat Bahri

Good afternoon. I will cover only the non-GAAP numbers in my prepared remarks today. Our GAAP numbers as well as the GAAP turned on GAAP reconciliation available in today’s earnings press release.

Today we announced second quarter revenue of $517.6 million up 27% as compared to the second quarter of 2011. For the second quarter of 2012, Trimble’s product revenue which includes hardware, accessories, spare parts and software licenses was $402.2 million or 78% of total revenue.

Service revenue which includes software maintenance, technical support and training while $63.6 million or 12% of total revenue and subscription revenue was $51.8 million or 10% of total revenue. Second quarter 2012 non-GAAP operating expenses income was $105.2 million was up 31% as compared to the second quarter of 2011.

Non-GAAP operating margin was 20.3% of revenue as compared to 19.7% of revenue in the second quarter of 2011. Non-GAAP net income of $92.1 million for the second quarter of 2012 was up 23% as compared to the second quarter of 2011. Diluted non-GAAP earnings per share in the second quarter of 2012 was $0.72 as compared to diluted non-GAAP earnings per share of $0.60 in the second quarter of 2011.

The tax rate was 16% in the second quarter of 2012 as compared to 10% in the second quarter of 2011 due to geographical mix of sales and the failure to-date by the Federal Government to reinstate the Federal R&D tax credit for 2012.

Second quarter 2012 E&C revenue was $284.2 million up 20% as compared to the second quarter of 2011. This growth was driven primarily by strong sales of machine control and building information management products. Across most geographies partially offset by the impact of foreign exchange.

Non-GAAP operating income was $62.8 million or 22.1% of revenue as compared to 49.4 million or 20.9% of revenue in the second quarter of 2011. The improvement in operating income was due to higher gross margins and operating leverage. Second quarter 2012 field solutions revenue was $123.4 million up 19% as compared to the second quarter of 2011 due primarily to increased sales of agricultural products and acquisitions, partially offset by the impact of foreign exchange.

Non-GAAP operating income was $47.3 million or 38.3% of revenue as compared to $43.1 million or 41.4% of revenue in the second quarter of 2011 down primarily due to impact of acquisitions.

Second quarter 2012 mobile solution revenue was $81.4 million up 102% as compared to second quarter of 2011 primarily due to PeopleNet acquisition and double digit growth in the base business. Non-GAAP operating income was $5.9 million or 7.2% of revenue as compared to an operating loss of $1.9 million in the second quarter of 2011. The improvement in non-GAAP operating margin was due primarily to operating leverage on higher revenue. Second quarter 2012, Advanced Device revenue was $28.6 million, up 9% as compared to second quarter of 2011 primarily due to strong sales of timing devices.

Non-GAAP operating income in Advanced Devices was $4.5 million or 15.6% of revenue as compared to $3.3 million or 12.5% revenue in the second quarter of 2011. The improvement in non-GAAP operating margins was due to product mix. In the second quarter of 2012 55% of revenue came from North America, 21% from Europe, 17% from Asia-Pacific and 7% from rest of the world. The year-over-year growth rate by region were 40% in North America, 32% in Asia-Pacific, 9% in Europe, the rest of the world was flat.

Non-GAAP operating expenses for the second quarter 2012 was $176.4 million or 34% of revenue flat as compared to the second quarter of 2011. Second quarter 2012; non-GAAP non-operating income was $3.8 million flat as compared to the second quarter of 2011 because of greater interest expense offset by higher joint venture profitability.

Moving on to the balance sheet, we finished the second quarter 2012 with $121.9 million in cash compared to $209.1 million in the first quarter of 2012. Our debt level was $697.4 million on a multiple of 1.9 times trailing 12 months EBITDA compared to $623.1 million on a multiple of 1.8 times trailing 12 months EBITDA in the first quarter of 2012.

Accounts receivable for the second quarter 2012 was $317.3 million as compared to $324.7 million in the first of 2012. Day sales outstanding in the second quarter of 2012 was 56 days as compared to 59 days in the first quarter of 2012 and 57 days in the year ago quarter. Inventory in the second quarter of 2012 was $227.9 million compared to $224.7 million in the first quarter of 2012 returned at 3.9 times as compared to 3.8 times in the first quarter of 2012.

For the third quarter 2012, Trimble expects revenue between $492 million and $497 million with GAAP earnings per share of $0.33 to $0.35 and non-GAAP earnings per share of $0.62 to $0.64. Non-GAAP guidance excludes the amortization of intangibles of $31.5 million related to previous acquisitions, anticipated acquisition cost of $4 million and anticipated impact of stock based compensation expense of $8.9 million.

Both GAAP and non-GAAP earnings per share assume a 15% to 17% tax rate, 128.5 million shares outstanding and interest cost of $4 million. We will now take your questions at this time. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our next question comes from the line of Jonathan Ho with William Blair.

Jonathan Ho - William Blair

Just wanted to start out and get your thoughts around sort of the drought and the potential impact that you guys are looking for or maybe some metrics around how you think this will impact customer buying decisions particularly in the second half of the year.

Steve Berglund

I think it didn’t have any terribly noticeable effect in the second quarter and in reality it's hard to quantify. Now we have taken a conservative posture in terms of the numbers we have put out for the third quarter. But I think it takes, there are a lot of moving parts here so first of all the center of the country is most affected and their farmers in some cases have already ploughed the crop under and replanted with others style (ph) crop. So they have already moved on to the next cycle. And for some farmers and this season maybe net loss, so what we do see generally is in the September timeframe work associated with the harvesting period we do see an increased demand level and so I think we are waiting and seeing but I don't need there is a whole lot of evidence, I don't think there is a lot of historical experience to drawn on and to actually come up with a clinical observation here but I think that I don't think it's materially affecting the farm economy, I don't think it's materially affecting farmers income and cash flow. So I it may have -- it's likely to have a one quarter if that and then I think we return to the normal buying season and that’s centered around the very early part of the year right before the planning season.

So, not dismissing it but at the same time it's not clear that this is necessarily kind of a disaster scenario and then the other thing from Trimble’s perspective we are seeing other geographies moving ahead very strongly in agriculture so I think there is even that the U.S. is affected I think we have got strong mitigation elsewhere in the world.

Jonathan Ho - William Blair

Got it and just in terms of the ag margins, I think you guys said acquisitions kind of impacted the margins. How should we be thinking about those margin trends going forward, is this sort of the new level adjusted for sort of the first half seasonality.

Steve Berglund

Sure, so we bought (inaudible) infrastructure and energy business that we put it in field solutions and that more businesses are low single digit operating margins so it dilutes the margin significantly as we compare it to the last year on a segment basis.

Having said that you know for example ag gross margins were not impacted year-over-year at all, we do have some incremental R&D spending going and that may hurt the margins by a point or so but we have said historically that once we reach these level of margins it's hard to retain those margins all the time but there is no competitive threat or no pricing pressures in the marketplace at this point of time which leads to believe that there are some short term issues on margins.

Operator

Our next question comes from the line of Jonathan Goldberg with Deutsche Bank.

Jonathan Goldberg - Deutsche Bank

Could you talk a little bit more about the inorganic versus organic question, I think your estimate was that organic growth revenue growth from the quarter would be in mid-teens how should we look at that going forward?

Steve Berglund

Sorry what was the question? How is it all going forward? As I said growth? As I said in the script we expect the second half to look much like the first half in terms from an organic growth standpoint.

Jonathan Goldberg - Deutsche Bank

How should we think about your long term revenue growth rate though, is that sustainable for the foreseeable future how should we anticipate?

Steve Berglund

We have been on record for years saying overall on the long base line looking forward is 15% to 17% with the idea that typically over time it's 2 to 3 points of that will be related to acquisition, the rest will be organic. So in a sense we are saying our current organic pattern is consistent with what we believe the long term to be.

Operator

Our next question comes from the line of Brett Wong with Piper Jaffray.

Brett Wong - Piper Jaffray

How is Tekla performing in light of the European weakness?

Steve Berglund

First of all Tekla is not overly tied to Europe we bought in Tekla a worldwide enterprise with significant operations in India, other parts of Asia, the U.S. and alike. So I would say is certainly there is conservatism in the marketplace that may not have existed a year ago in terms of deferred buying decisions but that’s true in the U.S. as well as Europe. So I would say is that Tekla which has a very, very strong basis in maintenance as well which is recurring, I would say is that Tekla is not, is maybe encountering some head winds in Europe but they didn’t exist a year ago but Tekla, Tekla first of all is it is not overly tied to Europe but it is really tied to worldwide economic conditions but Tekla is doing fine. In fact in places like India they are doing extremely well.

So I think we still view as Tekla as a double digit growth enterprise, if they are not going gangbusters in Europe they may be going well in other places and then there is a fair opportunity for example using the Trimble infrastructure to bring them into places where they may be under present in such as Brazil. So I think Tekla is still every bit the story that we talked about a year ago.

Brett Wong - Piper Jaffray

And how is China performing considering the concern (ph) in that region?

Steve Berglund

So China tends to be a kind of a bit lumpy at the moment, I think it's not the let’s call it the relatively huge story a few years ago, we still see it as a growth story. The second quarter was probably a little flat wise but that was due to some specific reasons that are likely to pass in the second quarter. So we are still seeing China as very much of a growth story.

Brett Wong - Piper Jaffray

Okay then and one last one for me, in last year (inaudible) and field solutions in 2013 as the OEM partner.

Steve Berglund

First of all on principal I wouldn’t want to necessarily speculate about any particular OEM but in general I would say its factors likely to be incremental, agriculture is getting the sizeable business so it's taking more and more to actually move the needle on it. So I would not in general want to comment specifically but I would say it would not be appropriate to view it as what’s called a discreet factor that will move the needle in 2013.

Operator

Our next question comes from the line of Richard Valera with Needham.

Richard Valera - Needham

In the quarter I think you mentioned the question as to whether Europe would have grown organically ex-acquisitions that you are grow in the quarter, could address that one again.

Rajat Bahri

So Europe excluding foreign exchange and acquisitions was I would say slightly down, flattish to slightly down but with acquisitions it reported growth for Europe but on an organic basis it was very slightly down.

Richard Valera - Needham

So just trying to get a sense of the trajectory of the business in Europe quarter-to-quarter and maybe taking out seasonal effects, would you see that at the margin it was very similar business conditions or anymore challenge than it was a quarter ago.

Steve Berglund

I think in the last quarter I think we at least attempted to provide the view that we thought Europe was let’s just say certainly not improving and probably getting a little bit more problematic. I think what is happening in Europe at the moment is that while we have seen for quite some time is the Southern Tier of Europe, Spain, Italy, Greece, Ireland have done very weak and have really not been a factors to the upside at all for us.

But until fairly recently Germany, the Nordic countries, the Benelux countries have provided relatively strong growth in France is sat in between, I with the headline factor that’s going on in Europe in terms of the uncertainty of the future of the euro, I think the psychological effect has caused relative conservatism on as far as investment decisions. I don’t think that investment decisions may not be getting cancelled but I think they are getting deferred so I think in general over the last three, four, five months because of the kind of headline factor there has been a bit of paralysis in investment decisions in Europe and so I think that for the second quarter as well as for the second half of the year that is basis of our thinking and not necessarily a real collapse of demand but I think a general slowness that relates more to the psychology of it decision-making relative to investment.

So I would say yes I think the environment decision-making environment today is more difficult than Europe than it was six months ago.

Richard Valera - Needham

Okay that’s helpful and then with respect to mobile solutions, I know historically when we have had challenging macro-environment, the cathode business have seen pretty significantly increase churn. I know you are actually trying to think I think sort of churn that business somewhat and focus more in verticals but have you seen any evidence of sort of macro-based increase in churn in that road maybe beyond what you had planned?

Steve Berglund

The general answer is no, I mean again we are changing business models here so I think that we are going through a period here for maybe another six months of increased churn simply because we are focusing on the let’s call it the higher value model and I would say the higher value model is much more resistant to churn that what’s call the kind of the mom and pops who thought on that functionality and when the times get tough the consequences of giving that up are relatively low so they have had a tendency to churn.

With the higher value solution, we are more tightly integrated into the enterprise model and therefore there is a higher cost to get that up and because it's just producing value. So I would say if anything, if you look to those style of businesses overall for the company I will say we can probably make it an argument, the churn rate is declining not increasing.

Richard Valera - Needham

That’s helpful and one more in mobile solutions if I could, you’re op margin in mobile solution has dropped about 300 basis point sequentially, I know you think you said we should accept some sort of noise in that number, you drew up 10% in the first quarter, we should something of 10% of sort of the anchor point and just think there might be some kind of bouncing around, around that number just wondering any guidance here will be helpful.

Rajat Bahri

Sure we said six year ago that we will expect double digit operating margins into back half of 2012 and with things incrementally getting better, Q1 was a little bit better, we had a little bit better mix and mix of hardware and software sales impacts margins and so forth. So there is some noise created by that but yes we are still committed to generating a 10% margin in the back half of the year and slowly improving it sequentially but you really have to look things at a 12 month rolling average or a six month because of this noise. But that line should be upwards as we move forward.

Operator

(Operator Instructions). Our next question comes from the line of Paul Coster with JP Morgan.

Paul Coster - JP Morgan

I would like to ask you a question as this business model has evolved and there is more software and service being folded into it. How is your visibility into future revenues evolving, do you better visibility both short and sort of medium term?

Steve Berglund

Arguably it's better than it was, that I wouldn’t necessarily call it great at this point in time, and statistically we are still a book and burn business. We do have a bit of -- we do have a larger deferred revenue number on the balance sheet that is predictable but that doesn’t necessarily what’s called kind of a more predictability on the aggregate. So I would say it is still a difficult business to claim strong visibility into and the nature of the business is changing, so larger portion of the business is tied to larger tenders which tend to be either produces zero or one in any given quarter. So I think in some sense any given quarter in isolation is getting somewhat harder to predict simply because there are these large orders that can move into a quarter or out of the quarter.

So I think that probably individual quarters are net-net getting harder to predict but I would say visibility into the business, pipeline analysis is probably better than it used to be but it's still just an incremental improvement not significantly, is significantly more predictable environment than we would have two, three years ago.

Paul Coster - JP Morgan

Okay the other question I had was that, you are a pioneer, you have created this new sort of solutions orientation inside the industry verticals. I am sure others have taken note and emulating, is there competitive landscape changing, you mentioned tenders earlier on, is it price paced competition or is it, is this still a fairly benign competitive landscape globally?

Steve Berglund

Yes I think if you take a snapshot of today, I think the competitive environment hasn’t radically changed from that which you would have seen three, four years ago. Certainly agriculture is competitive, structure is very much the same as was five to 10 years ago and that has been a very stable competitive environment. Construction it's still fundamentally us and Hexagon and Topcon with let’s call as we get more and more into the bin (ph) world and we get into more and more of the software world and construction, obviously the position from a competitive standpoint or from a structure standpoint will start to shift and there will be new combinations that some of them competitive, some of them collaborative that will emerge and in mobile solutions that’s also reasonably stable at this point in time. So I would say is as of today the competitive makeup looks pretty much the same as it has for some period of time, I would expect that over the next five years it will become more dynamic environment in terms of both competition and collaboration.

And on these large tenders, it's always about price, it's a different model which is when you are selling large scale tenders, the pricing will come down but at the same time and gross margin will therefore be somewhat lower, at the same time marketing and selling the costs are also lower. So I think that it doesn’t necessarily change the bottom-line result but there is an element of price competition that doesn’t exist on kind of all the one offs that have been our main stay for a long time.

Operator

Our next question comes from the line of Eli Lustgarten with Longbow Security.

Eli Lustgarten - Longbow Security

Couple of questions, one can you give us how much of the quarter was acquisitions and where they were reported, I assume the good part within you have a little bit left from Tekla on a year-over-year basis and a lot of it was in mobile solutions?

Rajat Bahri

Yes that’s fair, majority of the acquisitions were in those two segments and what was the other question?

Eli Lustgarten - Longbow Security

How much was the contribution from acquisition?

Rajat Bahri

As Steve said organic was mid-teens, we did 27% growth rate so the acquisitions partially offset by foreign exchange.

Eli Lustgarten - Longbow Security

Okay and how much was foreign exchange?

Rajat Bahri

Probably around 3 points of negative growth.

Eli Lustgarten - Longbow Security

3 points of negative growth and did that effect the bottom-line the same way?

Rajat Bahri

No we are naturally hedged right so we don’t as we said the (inaudible) for the most part we are protected from a bottom-line perspective.

Eli Lustgarten - Longbow Security

So really not much impact, now correct if I am wrong, I thought the majority of the ag sales take place in the first half of the year, is it more like 60% - 70% takes place in the first half?

Steve Berglund

Yes so without necessarily specifying the percentage that’s the right point of emphasis.

Eli Lustgarten - Longbow Security

You really should mention with 85% of the crop acres insured probably should have very little impact on the marketplace. Now the growth that you are seeing in E&C business this year were formidable, is that just the beginning, we finally pass SODO (ph) highway bill I mean they got certainty they don’t any more money but it's about the certainty is that what’s really driving the strength in the marketplace, disappointed people are planning now for the next few years?

Steve Berglund

I don’t know that I tied the heavy and highway results necessarily to any specific source, again its international so the U.S. is just one piece of the larger puzzle but it's certainly helpful and actually since you bring up the highway bill it's helpful in another regard for another Trimble business because it also specifies new set of rules and regulations relative to the operation of long haul trucks for example which rather for good or not brings a whole realm of regulation which in turn will tend to accelerate the adoption of our offering in the transportation and logistics realm, the mobile solution realm. So that is actually going to accelerate spending in what we are selling in the mobile solutions realm as well.

Eli Lustgarten - Longbow Security

Is this related to the our service act or the compliance…

Steve Berglund

Yes

Eli Lustgarten - Longbow Security

I am sure but is that effective July 2013?

Steve Berglund

Yes but in terms of driver’s logs and all that’s around that it's going to require for many truckers it's going to require a new investment in technology to keep those among other things, the driver’s logs.

Eli Lustgarten - Longbow Security

Now you gave the subscription sales about 10% of sales, is that mostly coming from mobile solution, is there any subscription sales related to the ag market or the field solution business?

Rajat Bahri

I mean there is but the vast, vast majority is mobile solutions. We do have some subscription sales in E&C that we monitor, the construction site and the charge the subscription model to provide that service, same thing we have a connected form and we provide subscription services but I would say vast majority of it is mobile solutions but there is some an E&C nag.

Eli Lustgarten - Longbow Security

Is that the same thing true with service or is that put across all the divisions.

Rajat Bahri

The service is primarily software maintenance which is primarily E&C and to some extent field solutions. So sell software licenses and then there significant maintenance stream that comes with selling those software licenses that is capture in the service line.

Operator

(Operator Instructions). Our next question comes from the line of Andrea James with Dougherty & Company.

Andrea James - Dougherty & Company

I just had a two questions on ag, can you just provide an update on your expansion into international markets, I know you have been focusing on new crops and I was curious about how it's going and do you like the traction that you are getting?

Steve Berglund

Yes I think in terms of bringing ag international, probably five years ago we had three foundation markets, it was North America, it was Australia and it was Brazil and we have made conscious efforts overtime to bring the capability into new markets starting with Europe and now places like China as well.

So we are getting traction, we are having good success like I indicated that we were getting very strong growth rates in some of these international markets. And then I think that there is a certain realm of overtime of potential of in a sense of becoming more local for example we are getting some traction in Africa but I think the solution in Africa it may end up needing to be different than the solution you would find in the middle of North America. So I think that we will have to do some level of reinvention and conform to local market needs but I think that we are in some cases a little surprised by the take up of the technology and what we thought we are going to be traditional and therefore somewhat more patient markets but we quite pleasantly surprised in some cases of how rapidly the technology is been absorbed but in general I think that right across the board in terms in international activities and ag, we are seeing traction and we are seeing good results.

Andrea James - Dougherty & Company

Thanks and then second it looks like, it just seems to me like dealer wants to make a bigger move into the space. I am just curious to get some updates thoughts from you on the competitive landscape in ag.

Steve Berglund

Again without been at all complacent here, I think that in terms of the fundamental structuring of the market, in terms of the fundamental competitive inner play its comparatively stable to what it has been, so again there are initiatives but certainly at the high end of the product range in terms of the autopilot ROM (ph) product, I think (inaudible) for us is probably the prime competitor and the prime challenge but it's been that way for years. I think the competitive next is different for the manual guidance at the lower end. But I don’t think there is any title force that we are currently in a competitive makeup of the market. So I would say what you see is probably what has existed and is likely to continue for some period of time.

Andrea James - Dougherty & Company

Thanks and then since I have you, I will lob in one more, can you talk about the integration of SketchUp and are you able to convert some of those many users that is required into paying customers and what does that kind of look like going forward?

Steve Berglund

Well again I think we are in the process of doing at this point in time, I think that we are eager to again do something’s fairly quickly display new capabilities, demonstrate those capabilities and then maybe to talk about what it means. So, aside from what we said at the point we announced the acquisition from an overall standpoint I preferred to wait a while and then point to actual accomplishment as opposed to prospective aspirations mainly.

Operator

And there seem to be no further questions at this time.

Steve Berglund

In that case thanks for participating on the call and talk to you next quarter.

Operator

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

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