Robert G. Painter
President and Chief Executive Officer at Trimble
Welcome, everyone. Before I get started, our presentation is available on our website, and we ask that you refer to the safe harbor at the back. The financial commentary today will reflect non-GAAP performance metrics, including organic growth comparisons, which will relate to the corresponding period of last year, unless otherwise noted.
Let's begin on Page 2 with our key messages. Total revenue in the quarter was $885 million, up 6%, yet short of our own higher expectations. Annualized recurring revenue met our expectations, and grew 16% to a record level of $1.55 billion. Gross margin finished at a record level of 60.9%, exceeding our expectations. ARR and gross margin are the two highlight metrics of the quarter. Software, services and recurring revenue comprised 60% of revenue in the quarter and 57% on a trailing 12-month basis. EBITDA margins of 25.8% and earnings per share of $0.66 also exceeded our expectations in the quarter.
While ARR performed extraordinarily well in the quarter, demand for hardware and associated software fell short, especially late in the quarter. We expect this will continue through the fourth quarter. While detecting the signal through the noise is difficult at the moment, we attribute the weaker hardware demand to two factors. First, we see a relative weakening of overall sentiment, especially in Europe and in other regions negatively impacted by the strength of the U.S. dollar. Second, we see our dealers, in aggregate, moderating their inventory levels on the back half of the year. This reflects their current sentiment, and also factors in some good news from our supply chains, which began to ease up and offer shorter lead times on our products.
We see many parts of the global economy through the industries we serve. If we look at the overall economic indicators, I'd say that, in aggregate, the indicators went from great to good. In agriculture, farm income remains high, but does -- so does inflation. In construction, the overall indices are still net positive, but interest rates are beginning to have a negative impact on residential work, and inflation is eating into the increased funding from the U.S. bipartisan infrastructure bill.
In transportation although spot rates in the truckload market have softened due to normalizing demand, freight volume remains steady along with contract rates. Higher fuel prices continue to inflate overall transportation costs. Yet, trucking margins have remained relatively healthy due to the strength of freight demand.
Managing through these challenging economic and geopolitical landscape presents a higher level of operational complexity. What is not complex is leading with guiding principles, which for us are threefold. First, we will take actions to exit an expected period of macroeconomic weakness on a stronger competitive footing. Second, we will continue to allocate capital to key areas of the business such as our digital transformation. Third, we will increase our operational and cost efficiencies and work to reduce our own complexities and redundancies.
With that in mind, I will comment on the business through the lens of our operating system, encompassing strategy, people and execution. Let's start with strategy. On September 7th, we held an Investor Day where we walked through our Connect and Scale strategy, and how it manifests as an industry cloud strategy. We talked about the unifying elements of Trimble and the market opportunity in front of us to digitize and connect some of the most important industries on the planet. We also discussed how our digital transformation will enable connected sales of solutions across a growing portion of our business, and shared examples where we are already winning with connected solutions in the market. Finally, we talked about capital allocation and our commitment to transform more of our solution offerings to ratable revenue models, which we firmly believe offer customers more value, while expanding the size of our addressable markets.
ARR, EBITDA and cash flow are key metrics for us in the coming years. In the last couple of weeks, we exhibited at the Intergeo geospatial conference and Bauma construction trade shows, both in Germany, both well attended and both with high levels of customer engagement. On November 7th through 9th, we will hold Trimble Dimensions, our engineering and construction user conference where we expect over 5,000 customers and partners to come together to connect and inspire transformation in our industry.
Moving to people. On October 6th, we announced that we changed our corporate headquarters to Westminster, Colorado. We've also made some leadership changes. In August, Ron Bisio took over responsibility for our transportation business. Last week, we announced that Peter Large will take responsibility for all of our construction assets, software and hardware, across civil and building construction. Our Chief Digital Officer, Mark Schwartz, will takeover responsibility for most of our construction software assets and Pattie Boothe will takeover responsibility for our civil construction business. We now have single points of accountability to deliver outcomes in construction, agriculture and transportation.
Finally, on the topic of execution, let's review this in the context of our reporting segments. In Buildings and Infrastructure, we acquired Bid2Win on September 9th, which is a great fit for our strategy. Bid2Win extends our software capabilities to estimating and operations in heavy civil construction industry. At the segment level, ACV bookings growth in the quarter exceeded the level of ARR growth, giving us visibility to continued growth. We also continued to see success in cross-selling and upselling new and existing logos with our early version of Trimble Construction One. We will continue to expand and automate this offering in the months to come.
In Geospatial, I spent three weeks in the Asia-Pacific region in September and that face-to-face with many customers there. I saw firsthand how they are using our survey and mapping instruments and software-driven work flows to build the largest infrastructure projects under development in New Zealand and Australia.
In Transportation, the business achieved double-digit operating income margin this quarter; for the first time since the fourth quarter of 2019. While we still have a lot of work to do, it is worth noting that we are headed in the right direction.
In Agriculture, we announced that we signed an agreement to acquire Bilberry, which we expect to close in the fourth quarter. Bilberry specializes in selective spring systems, utilizing artificial intelligence and machine learning for sustainable farming. We also signed an agreement with CLAAS to develop a next-generation precision farming system for their tractors, combines and forage harvesters. We launched our next-generation GFX high-resolution touchscreen displays, targeted towards farmers that operate mixed fleets. These GFX displays are compatible with over 10,000 vehicle models across more than 40 equipment brands and they are ISOBUS compatible, which allows one display for ISOBUS implements regardless of manufacturer.
Overall, Trimble customers see technology as an increasingly important tool to manage the inflationary and labor shortages they face and to achieve their sustainability commitments. Our bundled solutions represent a unique competitive strength as we compete for our share of the growing industrial technology market.
I'll now turn the call over to David to review our financial results and outlook in greater detail.