Trimble’s transportation group struggling with ELDs but has a strategy on software sales

The transportation segment at Trimble, which includes its transportation management system offerings and its ELD product, had a tough first quarter.

In releasing the company’s earnings, Trimble said its transportation segment produced revenue of $170.6 million, down 10% from the first quarter of 2019. Organic revenue was down 10%, with minor changes coming from foreign exchange and M&A activities. Operating income was $16.9 million, down from $31.2 million in the first quarter of last year.

In its supporting presentation highlighting what Trimble called “market dynamics,” the company gave pluses next to the growth of its map business as aiding the transportation segment, as well as the trucking companies that are Trimble’s customers continuing their delivery of food and other vital products during the quarter. But there were minus signs next to two specific market-related areas: “trucks being taken offline (capital goods, oil & gas)” and “lack of access to depots for hardware installations.”

But the main reason cited for the segment’s weaker performance is a continuation of what the company said was a problem in the fourth quarter: fulfilling the ELD mandate.

David Barnes, the Trimble CFO, said the segment’s performance was “driven in part by factors discussed in the fourth quarter of 2019 earnings release.”

At that time, CEO Rob Painter said of the transportation segment: “(T)he results are not to our standard. We have work to do and we have a plan. In our mobility business, meeting the demands of the ELD mandate proved harder than originally expected. We elected the right software for both our older hardware technology as well as our newer hardware platforms.”

Barnes said Trimble during the quarter had “made significant progress addressing product functionality gaps.” As a result, he said Trimble is seeing “lower churn” in the business. “Going forward we expect to accelerate the transformation to higher-performing hardware across our customers,” he added.

The move will “pressure margins this year” but “position the business for stability later this year as the market returns to more normal.”

There were other significant moves going on in the transportation segment at Trimble, however. Specifically, the company is moving away from the “perpetual license” model of software and more toward a subscription-based model.

As one provider of software said on its website in defining perpetual licensing: “You pay for your software license up-front and have the right to use it indefinitely. On top of the license fee, you will have the option to pay for one-off implementation services and a support contract, which is renewed annually.” The subscription model is the payment of an annual or monthly licensing fee.

Painter said on the call that more than half of the bookings the company recorded in the first quarter in the transportation segment were subscriptions. “We outperformed our own expectations,” he said. It is a particularly helpful trend now, Painter added, for customers in a “tight cash environment.”

And it helps Trimble get its TMS product into smaller customers. “We believe it serves an addressable market to the midsized carriers,” Painter said. 

The crisis caused by the pandemic is incentivizing Trimble to accelerate its strategy, Painter said. “We think this is the time with this crisis to move faster on these conversions,” he said. “So we’re shifting resources and our priorities around so we can come to market faster with these offerings. It’s the long-term thing to do for the long-term health of the business.”

Financially, the shift to subscriptions is generally a short-term hit on revenue. Hence, in the company’s chart of “market dynamics,” the move away from perpetual licensing was given a minus and a plus.

Despite the issues in the transportation segment, Painter said it remains a core operation. In particular, the shakeout in the ELD business that has long been predicted is ongoing, he said, “and we’ve seen a few competitors go out of the market or significantly cut back in the last couple of weeks.”

Even the aggressive strategy still needs to confront the reality of the market. Painter said new bookings are down 50% in the past few weeks, “and that is quite consistent with what we hear in the market.”

The transportation group at Trimble as measured by revenue is the third largest of the four groups, with the Buildings & Infrastructure segment about $125 million bigger in revenue for the quarter. The two other groups are not far from the revenue of transportation. 

Total revenue for the company on a non-GAAP basis was $794 million, down 1% from a year earlier. Its gross margin was up 110 basis points. Operating income was up 4% and its net income was up 8%.