Jonathan Ho: Hi, good morning. Just wanted to, I guess, better understand sort of your commentary around the bundling opportunities in the B&I business. Can you maybe help us understand maybe what the customers are seeing as they are starting to adopt Trimble One and some sort of your broader platform approach and maybe what that means from an upsell and ASP opportunity perspective?
Rob Painter: Good morning, Jonathan, good question. What we hear from – well, let’s talk about what we’re doing and what we hear from the customers. What we hear from customers is that similar to my remarks earlier is that they are looking to work with us in a differential way. They are looking to move from delivering task productivity to system productivity. They are looking to manage the volume of work that they have and the complexity they are in. They are looking at us and saying, we want to do more business with you, Trimble. It’s in the – part of the consistent theme has been make yourselves easier to do business with. And that’s where Trimble Construction One is part of that – is part of delivering that.
And what we see from the data is we continue to grow the cross-sells. So we look at the cross-selling on a year-over-year basis, and it’s a strong double-digit increase in the amount of cross-selling. And so we can manifest that cross-selling through, think of it as the TC1 offering. TC1 is a framework agreement essentially makes it easier to buy more Trimble solutions together in that bundle. And then where we go further with those bundles is defining those at a persona-based level, a customer persona-based level. That is to say a steel fabricator could use and benefit from a set of Trimble solutions different than the mechanical contract or different than the general contract or different than the architect. And so the persona-based bundling offerings create bundles specific to those personas.
And at our best, we can offer or sort of fullest manifestation of this, we can offer a good, better, best offering within those personas. And we’re still, I’d say, quite early in this journey. And so that’s one of the many things that gives me conviction that we’ve got runway to work with here in the business.
Jonathan Ho: Got it. And then just as a quick follow-up. Can you give us a bit more color on how the machine control as a service business is trending? And how those deals sort of work and whether this can help customers in a more cost contained environment? Thank you.
Rob Painter: Thanks for that question. I actually probably should have mentioned that during the – in the call. We actually have seen a higher level of adoption of the machine control as a service than was in our original expectations. So actually, that creates a negative delta to the top line revenue, as you know, right, for a subscription as opposed to a perpetual sales. So the adoption in the third quarter actually really year-to-date has been ahead of the expectations that we have for the business. For sure, if you think about proxy in the software world, what we’ve seen through the transitions we’ve made is not only do you make the technology more affordable in doing so, you expand the size of the addressable market.
And we’ve seen that time and time again in the markets we’ve served in software as we’ve made these transitions. I’d like to believe that, that’s a possible outcome as well in the hardware world, is that we can expand the size of the addressable market. And you think about the cost environment that we’re in or that we certainly we see that we’re in and we see that as a positive catalyst in that market. But I think even more interesting than that is once you’re monetizing on a subscription level on the machine control side, we believe it becomes much easier to package the relevant software offerings along with it as well. And so that’s a preview of where some of our next releases will go into Civil Infrastructure bundles that capture relevant Trimble software along with the hardware.
And then you asked about the business model that goes with it specifically. Well, we’ve had two versions of it. One, you go straight subscription on the entirety of the offering. And the other one is you do a split with the hardware and the software, which is to say you’d do a nominal amount upfront for some of the hardware and then you monetize the rest of the subscription. I think we’re going to see us do more of the latter over time. You can create some, I’d say, better aligned economics with the dealer channel in between when you have that upfront, a nominal amount of the hardware being sold upfront and actually also helps our cash flow ourselves as Trimble, and the customers have seemed to be reasonably indifferent of the two offerings.
So that’s where I think we will lean more into that one going forward.
Jonathan Ho: Thank you.
Operator: Your next question comes from the line of Charles Dillard from Bernstein. Your line is open.
Charles Dillard: Hi, good morning, guys. So I just wanted to double-click on the cost cuts that you have highlighted in your prepared remarks, $40 million. So first of all, are you expecting that to hit full run rate in 2024? Second, can you give a little bit more color on how it’s allocated? And third, how much is structural versus variable?
Rob Painter: So the – well, so it’s all structural is the first answer on the number. Our expectation is that we come into 2024 with that in place to build a move forward on that one. And then within the subset of the allocation, here’s how I’d want to portray it as we look at the portfolio of activities and businesses that we have. First, you take our software businesses, particularly the ARR businesses that are posting the rule of 40, rule of 50 and in some cases, beyond where we’ve got that growth. We’re going to continue to invest and grow the expenses in that, where we’re driving the bookings, which drives the ARR growth. And we look at the lifetime value to the customer acquisition cost as a strong measure of where to allocate capital.
On the flip side, we look at activities that have been a little further out in their nature or where the shape of the market adoption is scaling back on, where the world is scaling back on, let’s say, some of the ambition set that we have. And so we will look there. So it’s very ROI based in our approach. And it’s very strategic based because this is not going to be just a kind of a peanut butter approach. We will move activities that we have at the corporate level closer to the businesses, for example, the industry cloud work, that we have doing and we have been – I think we did the right thing to incubate that, the company – excuse me, through the corporate level for the last couple of years. Now we can get that embedded into a business and then sharpen the allocation within the business between the work we do within the short, mid and long-term.
Charles Dillard: That’s helpful. And then second question is just trying to understand how resilient the B&I business is to slow down. Maybe you can break it up into two parts, software versus hardware. Software sounds like based on bookings, it is relatively resilient. But I would love to understand like how long the contract duration is and how to think about that? And then on the hardware side, just try to think about significant amplitude there?
