Filed by Trimble Navigation Limited
pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities and Exchange Act of 1934, as amended
Subject Company: @Road, Inc.
Commission File No.: 000-31511
This filing consists of the transcript of a conference call held on January
25, 2007 by Trimble Navigation Limited ("Trimble") regarding its fourth
quarter and fiscal 2006 earnings. On December 10, 2006 Trimble entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Roadrunner
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Trimble ("Merger Sub") and @Road, Inc., a Delaware corporation ("@Road"). The
Merger Agreement is on file with the U.S. Securities and Exchange Commission
(the "SEC") as an exhibit to the Current Report on Form 8-K filed by @Road on
December 11, 2006, and is incorporated by reference into this filing.
MANAGEMENT DISCUSSION SECTION
Operator: Good afternoon. My name is Anna and I will be your conference
operator today. At this time, I would like to welcome everyone to the
Trimble's Fourth Quarter and Fiscal 2006 Earnings Conference Call.
[Operator Instructions]. Thank you. Ms. McManmon, you may begin your
conference.
Willa McManmon, Director, Investor Relations
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Thank you, and thank you for joining Trimble's fourth quarter and fiscal
2006 earnings call. I am here with Steve Berglund, our President and CEO;
Raj Bahri, our CFO; and Mark Harrington, our Vice President of Strategy.
During the course of this conference call we will make projections or
other forward-looking statements regarding future events or the future
financial performance of the company. The words intend, expect, plan or
similar expressions are intended to identify forward-looking statements.
We wish to caution that such statements are subject to risks and
uncertainties that could cause actual events or results to differ
materially. Important factors relating to our business including factors
that could cause actual results to differ from our forward-looking
statements are described in our Form 10-Q, 10-K and other filings with
the SEC. The company assumes no obligation to update these
forward-looking statements to reflect actual results or changes in
assumptions or other factors.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities shall
be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
Trimble and @Road filed with the SEC a prospectus/proxy statement and
other relevant materials in connection with the proposed acquisition of
@Road by Trimble pursuant to the terms of an Agreement and Plan of Merger
by and among Trimble, Roadrunner Acquisition Corp., a wholly-owned
subsidiary of Trimble, and @Road. The prospectus/proxy statement has been
mailed to the stockholders of @Road. The prospectus/proxy statement and
other relevant materials, and any other documents filed by Trimble or
@Road with the SEC, may be obtained free of charge at the SEC's web site
at www.sec.gov. In addition, investors and security holders may obtain
free copies of the documents filed with the SEC by Trimble by contacting
Trimble Investor Relations, 935 Stewart Drive, Sunnyvale, California
94085, or calling (408) 481-7838. Investors and security holders may
obtain free copies of the documents filed with the SEC by @Road by
contacting @Road Investor Relations, 47071 Bayside Parkway, Fremont,
California 94538, or calling (510) 870-1317. Investors and security
holders of @Road are urged to read the prospectus/proxy statement and the
other relevant materials, as well as any amendments or supplements to
those documents, when they become available before making any voting or
investment decision with respect to the proposed merger.
With that, I will turn the call over to Steve Berglund. Steve?
Steven W. Berglund, President and Chief Executive Officer
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Good afternoon. The performance in the fourth quarter completed a strong
year for Trimble. Total revenues grew 21% for the year, baseline adjusted
operating income grew 36%, and non-GAAP EPS grew 48%. Our baseline
operating leverage, which is key to continued margin expansion, was 29%
for the entire year. Beyond the financials, our trajectory during the
year strengthened and we entered 2007 with good momentum.
The Engineering and Construction business trend continues to be positive
with over 20% revenue growth for the year and adjusted earnings up over
30%. Aside from the residential construction slowdown in the US, which
has not had a material impact on our results, most of the other external
conditions have remained either relatively constant or have improved. In
particular, we are pleased with the strong and relatively broad growth we
have experienced in E&C internationally. Our Connected Construction Site
initiative continues to develop. At our November users' conference
Dimensions 2006, we continue to educate the universal contractors,
surveyors and engineers on the potential of using technology to transform
the way work is done on the construction site. This year, we had over
2,000 attendees, up by over 50% from our first conference in 2005.
Dimensions provides us with a unique venue to establish the agenda for
the industry. During the year, we augmented our internal development of
product for the Connected Construction Site with five acquisitions, which
filled in technology or capability gaps. The results from the E&C joint
ventures with Caterpillar and Nikon are also beginning to contribute more
substantially to Trimble's bottom line. For the year, our 50% of the post
tax results of the JVs amounted to almost $7 million. Entering 2007, the
external environment for E&C appears to be relatively steady. We have a
number of key external and execution factors that will determine success
for us in the E&C in 2007.
First, is the US economy that does not put heavy high weight or
commercial development in serious jeopardy. Again, we are seeing no signs
of significant changes at this point. Second, is a growing international
economy. We are seeing strong revenue percentage growth in a number of
areas around the world that will increasingly translate into bigger
dollar contributions. We are also seeing growth in Japan and Germany,
which have not provided a significant source of growth for some time.
Third, we need to ensure that the E&C acquisitions over the last 18
months begin to contribute with revenue growth and convergence on the
Trimble financial model. We expect this contribution will become more
meaningful in the second half of 2007 and accelerate into 2008. Fourth,
we must continue rapid incremental development of the Connected
Construction Site with the expectation that it will begin to beneficially
contribute to E&C financial results in 2008. Fifth and most importantly,
we must continue the fundamental blocking tackling work, penetrating the
E&C markets by exhibiting the virtues of product innovation, enhanced
distribution channels and compelling customer value.
The Mobile Solutions segment had a dynamic 2006 and is poised to have an
even more dynamic 2007. Reported revenues grew 93% for the year as a
result of the combined effects of organic growth in acquisitions.
Reported operating profits swung by over $5.6 million during the year
from a loss in 2005 to a profit in 2006. The acquisitions, which occurred
in late 2005 and during 2006 camouflaged the continuing profit
development of the core TMS business, which is generating rapidly
improving margin performance.
Business, as constituted prior to those acquisitions, earned double-digit
operating margins in the fourth quarter. As the acquisitions converge on
the Trimble financial model, we expect to produce a significantly
enhanced earnings profile out of this segment. Although we discussed the
pending @Road acquisition at length in December, let me update you on
status and reinforce the rationale. At this point we have received both
SEC and HSR clearance and believe we are on track for mid-February close
subject to the @Road shareholders' vote. We have been conducting a series
of dialogues without @Road management, employees and believe we would be
in a position to establish a solid transition at the point of close. Thus
far, we have been favorably impressed by the intelligence, enthusiasm and
openness of the @Road management group. As we said in December, and I
will reinforce now the competitive market of the two -- competitive
market overlap of the two companies is relatively small and we will not
need to do extensive re-engineering of sales forces and marketing
operations to achieve our objectives.
A four-point rationale for the combination remains the same. First, is
that this is a logical extension of the strategic course Trimble has been
on since 2001. The second is the belief that the market potentials
effectively unbounded and that the market development will accelerate in
the next two to
three years. Third is the recognition that @Road has built a strong
product portfolio, established a world-class scalable software
infrastructure and pioneered new channels. With this transaction Trimble
achieves a leadership position in terms of capabilities and products and
can use that position to accelerate the further penetration of the
market.
The fourth is our belief that we can make this combination highly
successful financially and believe we can generate returns well above our
cost of capital. The successful will result from three sources. The first
is achieving significant revenue growth. The second is achieving a very
high rate of operating leverage in the next three years. And the third is
achieving initial synergies from the current cost base.
The key success factors for us in the Mobile Solutions segment in 2007
are straightforward. The first is a constructive combination of @Road and
Trimble that puts us on the path to accretive performance in 2008. The
second is to maintain the strong organic momentum within the existing
businesses towards strong double-digit revenue growth, coupled with rapid
convergence on the Trimble overall operating margin. The third is to
continue to enter new vertical markets where Trimble can provide
significant value. The fourth is to expand more aggressively
internationally.
The Field Solutions segment ended the year strongly with revenues growing
19% in the second half of the year. Revenue growth for the total year was
9% and underlying adjusted operatings growth was 18%. Last quarter, we
announced we were expanding our role in the agricultural market by
introducing a product extension into flow controls. Earlier this week we
also announced a significant end product, the EZ-Guide 500 system for the
lower cost lightbar segment of the Ag guidance market. We believe the
future set and the cost point have again redefined the cost benefit ratio
for this market. In anticipation of the introduction of the new unit, we
reduced prices of the existing lightbar product to establish a more
affordable entry point for agricultural guidance during the fourth
quarter. These actions are taking place against what appears to be more
favorable trends in the agricultural market as a result of the ethanol
initiative, strengthening prices and lower fuel cost. During the quarter
we also acquired Spacient Technologies as part of our GIS business to
extent our software presence in the utilities space.
The key success factors in Field Solutions in 2007 are to continue with
our program in agriculture of further market penetration, the aggressive
product innovation, channel refinement and improvement in the cost
benefit equation for the farmer. To grow the agricultural flow controls
beachhead we established in the third quarter, to grow GIS sales
internationally and to explore ways in which to expand our GIS position
in the utilities market.
The Advanced Devices segment grew 13% for the year with lower
profitability. Although we are not satisfied with the profit picture, the
internal dynamics of this business are showing improved potential and we
are seeing more top line buoyancies than we have for some time. The
components business reflected record unit shipments in spite of the
continuing decline is sales to the automotive industry. This performance
record was established without any real impact from the Copernicus
module, which we introduced in the first quarter of 2006 and which will
not have a meaningful revenue impact until 2007, as a result of the time
required to design it into end products. In addition, we are seeing an
improved revenue ramp for TrimTrac, which increases the probability of
improved profitability performance during the year since TrimTrac
represents the most significant earnings drag in the segment.
The key success factors for 2007 in the segment are to continue to
improve TrimTrac sales to exploit the improving trend in the
non-automotive components markets and to look internationally for new
growth areas. Trimble is approaching $1 billion revenue rate, with
increasing size comes both the inherent advantages of scale and the
accompanying challenges of complexity, transparency and control. We
continue to architect the organization around values that emphasize
disciplined entrepreneurship, flexibility in responding to our markets,
and tight coupling across the company to enable faster innovation.
We are fortunate that our fundamentally longer-term strategic objectives,
although constantly being refined and internally challenged remain
relevant and consistent with the path we laid out a number of years ago.
We have therefore been able to focus on key points of execution. These
key elements of execution remains centered on developing an organization
capable of delivering a growth strategy, continuous innovation, market
penetration in that, and expansion and converging on world class
operational performance.
Overall, it was a good quarter and a good year. We entered 2007 with a
number of execution challenges, but we also have significant momentum. We
think we can make 2007 another good year for Trimble. Let me turn the
call over to Raj.
Rajat Bahri, Chief Financial Officer
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Thank you Steve. Fourth quarter 2006 revenue was $234.1 million, up 25%
year-over-year, driven by strength across all segments. GAAP earnings per
share of $0.41 were even with the fourth quarter of 2005. For
year-over-year comparison, it is important to note that net income in the
fourth quarter of 2005 benefited from the recognition of a one-time
deferred gain from the CTCT joint venture of $9.3 million.
Additionally, fourth quarter 2006 GAAP earnings were impacted by $0.04
per share due to adoption of FAS 123R, which was not accounted for in the
fourth quarter of 2005, and approximately $0.06 per share from higher
amortization of intangibles and in-process research and development from
new acquisitions. Adjusting for these factors non-GAAP earnings per share
of $0.51 were up 77% over the fourth quarter of 2005. The tax rate for
the fourth quarter of 2006 was 25%. The lower tax rate was primarily
driven by the recently passed legislation on R&D tax credits and by the
favorable outcome of an international audit.
Full-year 2006 revenue was $940.2 million, up 21% compared to 2005. 2006
GAAP earnings per share of $1.79 were up 20% over 2005, and non-GAAP
earnings per share of $2.12 were up 48% over 2005. Overall, operating
income for the quarter was $27.3 million, up 19% over the fourth quarter
of fiscal 2005. Operating income for the full-year 2006 was $135.4
million, up 8% over 2005. Operating income for the quarter and year were
impacted by the adoption of FAS 123R, which had a $3.1 million impact on
the quarter and $12.6 million impact on full-year 2006.
Secondly, the net impact of transactions with the CTCT joint venture,
which moved costs from the non-operating expense line to the operating
line, reduced product operating results by $3.1 million in the fourth
quarter and by $18.2 million for the full year. And last, a $2.4 million
increase in the amortization of purchased intangibles and purchased
in-process research and development expense in the quarter and a $7
million increase in the same for the full year. Adjusting for these
factors, operating income was up 51% for the quarter and 36% for the full
year.
Operating income margins for the fourth quarter were 12%, flat with the
fourth quarter of 2005. Operating income margins for the year were 14%
versus 16% in 2005. Again, adjusting for the three factors mentioned
earlier, operating income margins for the quarter was 17%, an increase of
three points versus 2005, and 19% for the full year, an increase of two
points over 2005.
As I have done throughout this year, I will now discuss results for each
of the segments both on a reported basis and underlying basis, excluding
the three items mentioned earlier. Engineering and Construction revenue
for the fourth quarter of 2006 was $160 million, up 24% over the fourth
quarter of 2005 driven by continued strength in survey as well as
increased sales of machine control products.
Operating income margins were 20% on a reported basis and 23% on an
underlying basis, compared to 19% in the fourth quarter of 2005. E&C
revenue for the year was $637.1 million, up
21% over 2005 with operating income margins of 21% on a reported basis
and 25% on an underlying basis, compared to 22% in 2005. The margin
expansion in E&C was driven by higher margin new products and leveraging
of operating expenses.
Trimble Field Solutions revenue in the fourth quarter of 2006 was $30.6
million, up 21% from the prior year due to more steady agriculture market
as well as sales of new GIS products. Fourth quarter operating income
margins for TFS were 21% on a reported basis and 22% on an underlying
basis, compared to 20% in the fourth quarter of 2005. TFS revenue for
2006 was $139.2 million, up 9% over 2005. TFS operating income margins
for the year were 27% on a reported basis and 28% on an underlying basis,
up from 25% in 2005 due to product mix and operating expense leverage.
Revenue for Trimble Mobile Solutions in the fourth quarter for 2006 was
$17 million, up 63% over the prior year with operating income margin of
5% on a reported basis and 6% on an underlying basis, compared to 2% in
the fourth quarter of 2005. TMS 2006 revenue was $60.9 million, an
increase of 93% over fiscal 2005 with operating income margins of 4% on a
reported basis and 5% on an underlying basis, compared to negative 10%
last year. Growth in TMS came from increased subscriber base and software
fees as well as from acquisitions. And the significant turnaround in
profitability came due to double-digit growth in our subscriber base,
which has higher gross margins. The improvement in the organic business
was even more dramatic as acquisitions were impacted by write down of
deferred revenues and new investments.
Advanced Devices revenue for the quarter was $26.5 million, up 20%
year-over-year with operating income margins of 5% on a reported basis
and 7% on an underlying basis, down from 11% in the fourth quarter of
2005. Revenue growth was driven by strength in embedded products and
Nokia licensing revenue. Full-year 2006 revenue for Advanced Devices was
$103 million, up 13% over 2005 with operating income margins of 10% on a
reported basis and 12% on an underlying basis, compared to 14% in 2005.
Revenue growth was driven by embedded and airborne products, and Nokia
licensing revenue.
Operating income margins for the quarter and the year were impacted by
product mix and expenses related to TrimTrac relaunch, partially offset
by Nokia royalty payments. For the overall company, gross margins for the
fourth quarter were 49% on a reported basis and 52% on an underlying
basis, compared to 49% last year. The margin expansion came from higher
margin new products and high subscriber revenue.
Geographically in the fourth quarter, overall company revenue increased
year-over-year by 24% in North America, 23% in Europe, 33% in
Asia-Pacific and 32% in the rest of the world. 2% of overall growth in
the quarter came from a weaker dollar. Total operating expenses for the
fourth quarter of 2006 came in at $88.5 million or 38% of revenue,
compared to 37% of revenue in the fourth quarter of 2005.
Operating expenses for the quarter included $2.3 million for amortization
of purchased intangibles and $900,000 for in-process R&D expenses that
resulted from acquisitions, as well as $2.8 million impact from the
adoption of FAS 123R. Excluding these impacts, fourth quarter operating
expenses were 35% of the revenue versus 36% in the fourth quarter of
2005. Total operating expenses for 2006 were $325.7 million or 35% of
revenue compared to 34% of revenue in 2005. Operating expenses for 2006
included $7.9 million for amortization of purchased intangibles and $1.9
million for in-process R&D expenses that resulted from acquisitions, as
well as $11.4 million impact from the adoption of FAS 123R. Excluding
these impacts, operating expenses for the full year came in 32% of
revenue versus 33% of revenue last year.
For the full year, we dropped 29% of incremental revenue to the bottom
line. Non-operating income for the fourth quarter of 2006 was $4.7
million versus $8.7 million in the fourth quarter of 2005. The
unfavorable variation was driven by a one-time differed gain on the CTCT
joint venture of $9.3 million in the fourth quarter of 2005, partially
offset by $700,000 of higher interest income, a
$900,000 increase in CTCT joint venture profitability, and $2.7 million
of transfer pricing costs that were reflected in last year's
non-operating line.
For the full year, non-operating income was $12.7 million, favorable to
last year due to higher net interest income of $4.7 million, higher joint
venture profit of $5 million, and $11.4 million of transfer pricing costs
that were reflected last year in the non-operating line, partially offset
by the recognition of a one-time deferred gain on CTCT joint venture of
$9.3 million.
For the fourth quarter 2006, GAAP net income was $24 million and earnings
per share were $0.41, flat compared to fourth quarter of 2005. For the
full-year 2006, GAAP net income was $103.7 million, up 22% over 2005.
Earnings per share in the fourth quarter of 2006 were impacted by
approximately $0.04 due to adoption of FAS 123R, and by approximately
$0.06 due to high amortization of intangibles and in-process R&D.
Earnings pre share for the full-year 2006 were impacted by $0.15 and
$0.18 respectively for the same factors. Also note that net income in the
fourth quarter of 2005 was favorably impacted by recognition of one-time
deferred gain of $9.3 million related to CTCT joint venture.
I will now move to non-GAAP results for the fourth quarter of 2006, which
excludes amortization of purchased intangibles, restructuring charges,
the amortization of acquisition related inventory step-up charges and the
impact of adoption of FAS 123R. Non-GAAP net income and earnings per
share for the quarter were $30.1 million and $0.51, up 85% and 77%,
respectively, over the fourth quarter of 2005. For full-year 2006,
non-GAAP net income and earnings per share were $123 million and $2.12,
up 51% and 48% respectively for the year.
Looking at the balance sheet, we finished the fourth quarter with $129.6
million in cash compared to $136.4 million in the prior quarter. Strong
cash flow from operations was offset by the cost of four acquisitions in
the fourth quarter. In the fourth quarter, net accounts receivable were
$172 million compared to $173.3 million in the third quarter of 2006. In
this period, day sales outstanding improved to 55 days compared to 59 in
the prior quarter. Inventory was $112.6 million compared to $114.9
million in the third quarter of 2006. Turns were 4.1 for this period
compared to 4.0 in the prior quarter.
Before I turn to the guidance, let me mention that on January 17, 2007,
Trimble's Board of Directors approved a two-for-one split of all
outstanding shares of the company's common stock, payable February 22,
2007 to stockholders of record on February 8, 2007. Stockholders who will
receive shares in the acquisition of @Road will have their shares
adjusted to reflect the stock split. The earnings per share numbers I
just discussed and the guidance which I'm about to give do not reflect
the stock split.
Now I will give you GAAP guidance for the first quarter of 2007, which
does not include the impact of the anticipated acquisition of @Road
announced on December 11, 2006, that is expected to close in February of
2007. In the first quarter of 2007, we expect revenue to grow 16 to 18%,
compared to first quarter of 2006, with revenue between 262 million and
$267 million. At a 36% tax rate with approximately 59 million shares
outstanding, we expect first quarter 2007 GAAP earnings per share between
$0.45 and $0.48. The above GAAP guidance includes stock-based
compensation. On a post-tax basis, we expect stock-based compensation for
the first quarter of 2007 to be approximately $0.03. We expect non-GAAP
earnings per share between $0.54 and $0.57 in the first quarter of 2007.
Non-GAAP guidance for the first quarter of 2007 uses a 36% tax rate and
excludes the amortization of intangibles of $5.1 million in the quarter,
as well as the anticipated impact of stock-based compensation expense of
$3.3 million. For year-over-year comparison, it should be noted that the
tax rate in the first quarter of 2006 was 28% and is forecasted to be 36%
in the first quarter of 2007. It should also be noted that the first
quarter guidance is expected to be impacted by deferred
revenue write-downs for acquisitions made in the fourth quarter of 2006.
As guided in the @Road announcement in December 2006, we currently expect
total 2007 company revenue between $1.14 billion and $1.17 billion,
assuming a February 2007 close of the @Road acquisition. Of this amount,
approximately 80 million to $85 million in revenue is expected to come
from acquisition of @Road.
We expect full-year 2007 non-GAAP earnings per share of between $2.10 and
$2.15. The baseline outlook for the company, excluding the @Road
acquisition, is between $2.30 and $2.35 non-GAAP earnings per share. The
@Road transaction is expected to be single-digit dilutive in 2007 on a
percentage basis due to interest payments on debt, an assumed higher
share count and the deferred revenue write-down, partially offset by
synergy savings and improved business profitability. We will update to
you on our total company guidance for 2007 in detail, including the
impact of @Road, on our April 2007 conference call.
We will now take your questions. Thank you.
Willa McManmon, Director, Investor Relations
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Operator, we'll take questions now.
QUESTION AND ANSWER SECTION
Operator: [Operator Instructions]. Your first question comes from John
Bucher with BMO Capital Markets.
Q - John Bucher: Thank you very much. Steve, your description of the
external environment was helpful, just in understanding what some of the
swing factors might be. Your largest reporting segment, E&C, is more than
five times the size of the next largest reporting segment in terms of
revenues. I was wondering if you might be able to provide sort of a
similar perspective that you did in describing the external environment,
just on the products and the systems that make up E&C; survey machine
control, constructions and instruments. And maybe give an update there on
what you saw trend wise in the fourth quarter and then as you look out to
2007, how do you see things?
A - Steven Berglund: Yeah, actually I think probably the words I used
to describe the overall environment relate pretty specifically to E&C.
And so, first of all, the residential housing thing sits there in the
background. But as we pointed out repeatedly, that it doesn't tend to be
a big market for us. So I would in general describe the environment in
the E&C world as being generally steady. Now steady in this context is a
good thing, so we are not necessarily seeing heavy trends in any
particular direction. There are geographic pockets here and there that
are doing better than others. There are some segments that are doing
better than others. But overall, we are certainly listening to what the
pundits have to say on the macro economic environment relative to
interest rates and all of that. But on our more modest view at the world.
What we are seeing is a relatively steady environment as it affects E&C,
and with a bit of a positive overlay. From the standpoint is that the
geographic growth rates that Raj was talking about are actually a little
bit more pronounced for E&C than they are for the rest of the companies.
So that we are seeing now -- across a large number of geographies, we are
seeing relatively robust growth for E&C. And again, if Germany and Japan
started to even come back to a fraction of what they were back in the
early `90s. That would be a significant event for us in the E&C. So I
think it's pretty much steady as she goes and we are not necessarily
seeing any major swings in trends from our perspective.
Q - John Bucher: I didn't do the best job of asking that question. I
kind of was looking at it more from the standpoint of breaking down the
components that make up E&C. So for example, did you see in the fourth
quarter, was the sales of the S6 station, was that substantially higher,
what are the trends there? What are you seeing with respect to machine
control? What are you seeing with respect to construction instruments and
things that make up E&C? I was looking at it more from that perspective?
A - Steven Berglund: Okay. Well, and again I think my answer would be
something of the same is that obviously the construction instruments
portion, the rotating lasers and such are more affected by residential.
So we are - as we said I think on the third quarter call as well, we are
seeing, let's say a slower environment there and that is the portion that
is affected by residential. But machine control survey, I would say that
there really hasn't been a - any significant swings among those. I think
that we are seeing strong - continued strong infrastructure sales in
survey. We continue to see, what I will call steadily strong sales of the
upper end instruments in survey. We are getting some traction at the
lower end through the Spectra Precision rebranding starting from the low
base, but seeing continued traction there. The Nikon joint venture
products are doing well in the marketplace. So high-end, low-end, we are
seeing relatively steady growth profile there, but it is a growth
profile. Machine control as a product category continues to do well and
in a very strong double-digit growth there. So again, I think that the
only character -- right across the board with the exception of
construction instruments, which is being affected a bit by the
residential slowdown, I would say is that the trends are pretty
consistent with what they have been for really a couple of years now.
Q - John Bucher: Thank you very much.
A - Steven Berglund: You bet.
Operator: Your next question comes from Amit Kapur with Piper Jaffray.
Please go ahead.
Q - Peter Swanson: Hi. This is Peter Swanson on Amit's behalf.
Congratulations on a good quarter, guys. I had a couple of quick
questions. E&C margins seem to have declined over the third quarter, is
that seasonality or did anything else happened here at the dealer
channel? And similarly the Field Solutions margins appeared stronger. Can
you give us some sense of what happened there? Thanks.
A - Rajat Bahri: So - this is Raj. So clearly, if you look at margins
versus prior year, E&C margins were up like 200 - on an underlying basis,
200 basis points versus last year. So they did expand margins versus -
but we have some seasonality factors in E&C that sequentially the
revenues down so growth - that impacts our margins somewhat. So there is
some seasonal factors in quarter-over-quarter. But really if you look -
to look at in a correct way versus prior year, there we did expand
margins.
Q - Peter Swanson: Nothing happening at the - I mean the dealers are
like pushing - there is no pricing, impact on the pricing environment,
Raj?
A - Steven Berglund: No. I think that there's nothing structural that's
going on in either of these markets. So what you are seeing is what I
recall more arithmetic effects and seasonality effects than anything,
that is, that I would term as at all structural.
Q - Peter Swanson: And about the Field Solutions, the margins appeared
stronger. Is that the same - kind of the same reasons there?
A - Rajat Bahri: It's the business mix between - it's a business and
product mix that's driving that also. There is no price - no change in
the pricing environment.
Q - Peter Swanson: Can you give us an update on the Connected
Construction Site initiatives and how that's going, just kind of a little
more detail than what you discussed already?
A - Steven Berglund: Yeah, again I think that at this point of time
it's - the revenues beyond our kind of core products that we would call
connectors, Connected Construction Site revenues are still de minimis in
the whole, but we are seeing are solid trajectories in things. For
example, bringing asset management and work process status management on
to the construction site. We are seeing very strong relative secular
growth out of that. We did roll out a number of initiatives at the
Dimensions Users Conference in November, including things like we have
over the last couple of years spent a fair amount of money developing a
training regime for contractors to use, using computer tools as well
in-class participation, and we have rolled that out as a significant new
product line in November. I recall all of these Connected Construction
Site initiatives.
So, development continues. We have added Meridian to the product mix to
provide a backbone, an information backbone for the Connected
Construction Site. So they were acquired in the fourth quarter, so we
have added significant capability in the last six months. And now I think
that really we are engaged in bringing it all together. But again, I
think there isn't going to be a step function event here, there isn't
going to be any particular day when people will wake up and say their
Connected Construction Site has arrived. It will be iterative, it will be
progressive and will really unfold over a number of years. So it will be
product announcement by product announcement kind of new customer by new
customer. So, it's really as much of a concept that we are out promoting
to the contractors at this point in time more than any particular
discrete event. So I don't have a whole lot of tangibles to point out
publicly at this point in time, but that will continue to develop over
the next year and we will have more and more to talk about as the year
unfolds.
Q - Peter Swanson: Sure. In terms of the recently announced GuideWorx
application for cell phones I think in early January, can you talk about
your outlook for the uptake of GPS in cell phones during 2007 and whether
you have plans for further initiatives there? And what are some of the
synergies that you see with the cell phone versus your more traditional
industrial and enterprise end markets. Can you talk a little bit over
there?
A - Steven Berglund: Okay. Well, I am basically going to skip to the
second part of the question, which is where we are maybe confident to
answer, because again, being what we are cell phones have not been a
central supplying - the cell phone market has not been a particular
strategic focus of Trimble. I think I am more comfortable talking about
the implications of the cell phone and our end user type applications,
which is over time going to be significant. I think that we recognize the
improving capabilities of cell phones and the fact that they are going to
provide greater and greater functionality. So I think in most of our
product lines, whether it be construction related or certainly GIS,
Mobile Solutions, we acknowledge that the cell phone will be part of the
product solution there. So we are developing in a number of cases
applications that will ride on the cell phones and that will typically at
the low end where robustness and some of those considerations aren't as
important will be part of the product line. And I think that we over time
have actually demonstrated at trade shows and such the capabilities of
cell phones. So we would regard the cell phone to be a significant part
of our future, but as a platform on which to put applications. And to
your middle question there, as again we announced the Nokia deal some
time ago and I think that cell phones are of caught interest to us, but
not a strategic point of focus.
Q - Peter Swanson: And lastly - actually I just have one more question,
can you discuss some of your plans around Galileo and how you think the
new system, whenever it launches will impact the market?
A - Steven Berglund: Well, I think in an overall sense, Galileo is a
positive thing for the user, puts more satellites in the sky, increases
the robustness of applications. I don't think it's a game changer in
terms of applications there. It's not necessarily going to bring step
function new functionality, it will make existing applications more
robust. So, at the appropriate time, just as we've got a GPS/GLONASS
receiver, at some point we'll probably have a GPS/GLONASS Galileo
receiver. So - but I don't see it as any kind of game changer, the
applications will remain what they are and Galileo will simply make them
more robust.
Q - Peter Swanson: All right. And actually one last question and I
promise you to step away. Any feedback from customers or potential
customers on the acquisition of @Road, any - just in general?
A - Steven Berglund: Well, yeah, I can answer generally. And what we
are getting as feedback through @Road is that, until the shareholders
vote. Is I think it would be inappropriate for us to be out in close
proximity to @Road customers, but they certainly have been talking to
their customers and the feedback through @Road to us seems to be positive
and perhaps in some cases very positive.
Q - Peter Swanson: Great. Thanks a lot.
A - Steven Berglund: Thank you.
Operator: Your next question comes from Bill Benton with William Blair.
Q - William Benton: Hi, good afternoon guys. Congratulations on another
strong quarter. First, Raj, if you could just help me on the 36% tax rate
outlook, given the R&D tax credit extension that seems a little
conservative and I was just trying to understand the dynamics behind
that?
A - Rajat Bahri: Yeah, so, R&D tax credit clearly is favorable, but
there are some deductions that we get for exporting products out of the
US that are going away for us next year. So hence the tax rate is going
up because of that. So the R&D tax credit is pretty much being offset by
those deductions going away.
Q - William Benton: Okay. So that's...
A - Rajat Bahri: And this year - just let me comment why this year tax
rate is low. We -- in general if you look at for the full year, we
started with a guidance of 36 and we finished the year at 30%. But we had
a lot of audits that were going on primarily in the international area in
countries like France and Netherlands and Sweden and so forth. And we had
booked exposures for those. We were successful in all those audits and we
had some reversal of those exposures, which lowered the tax rate this
year. So there were some discrete events that led us to a 30% tax rate
this year.
Q - William Benton: Okay. And then in terms of the GIS, you guys noted
it was strong, do you think that was budget flush related or was there
something else there that seems to be maybe more sustaining into the
current quarter?
A - Steven Berglund: Well, I think if you look at year-end governmental
effects, they tend to be more clustered in the third quarter than the
fourth quarter.
Q - William Benton: Right.
A - Steven Berglund: So the fourth quarter tends to be a little bit
more plain vanilla. So I would in general say that the fourth quarter
represented a - well, I wouldn't call it normal quarter, but I would
basically say it stands on its own legs without any special
interpretation. So, we have - during the course of 2006, we did - we came
out with new products, that's certainly helping. We are paying a lot of
attention to refinement of the distribution channel and opening up more
value-added channels and I think that's helping. So I think that the
environment at least in GIS historical terms is comparatively strong,
it's a little bit more of a steady eddy sort of market for us, but
certainly I would say market conditions right now are comparatively good.
Q - William Benton: Okay. And then, staying in that segment I guess.
You kind of touched on it a little bit on the Ag side, you got a new
product, we've got $4 per bushel corn, which is nice. I am just kind of
curious what you might be seeing or hearing from some of your channels in
terms of maybe some unusual amount of purchase activity earlier in the
year here?
A - Steven Berglund: I don't know, but I haven't heard anything about
unusual purchasing activity. But I was at our Ag distribution meeting
earlier this week which had 365 people in the audience, which is a record
number of people in the audience for us, so times must be relatively good
to afford the travel. But I think that the - I think that the sense is
that Ag maybe isn't back to kind of a very robust days of two/three years
ago, but I think there is a sense of improving confidence, certainly from
what it might have been in the last half of 2005. So I think there is a -
the sense is that the market is recovering. There is more money that's
flowing into the farm economy and that may accelerate somewhat the
ethanol initiatives. But I don't know that there is - I certainly
wouldn't be calling any kind of unusual activity out of the first
quarter. I think it's still very much of a blocking and tackling sort of
market for us.
Q - William Benton: Okay. And then just in the Mobile Solutions side,
[inaudible] good growth year-over-year. It slowed a bit maybe
sequentially in year over year. And so I'm just trying to get a general
sense on what might be happening there, if there is some accounting in
the deferred revenue side, I know there are some acquisition shifts in
between as well. So what do you see in there underlying those numbers?
A - Rajat Bahri: And so, the question is on Mobile Solutions, right?
Q - William Benton: Yeah.
A - Steven Berglund: On deferred revenue effects.
A - Rajat Bahri: Yes, so...
Q - William Benton: Yeah, just the revenue slowing a little bit...
A - Rajat Bahri: In the organic business, those margins are up
sequentially.
Q - William Benton: Okay.
A - Rajat Bahri: It is the acquisitions that's just clouding the factor..
Q - William Benton: Okay. Not necessarily the margins, I was actually at
the revenue growth, I know it was very strong year-over-year. It just
slowed a little bit, and I didn't know if that might be some of the
effects of [inaudible].
A - Rajat Bahri: That's something -- last year we acquired MobileTech,
which was the acquisition in Q4. So when we did Q3 comparison, there was
no acquisition at all.
Q - William Benton: Okay.
A - Rajat Bahri: And then in Q4, we got part year of this big
acquisition, half way decent acquisition we did of MobileTech, which was
the DSD side. So the acquisition impact slowed down somewhat.
Q - William Benton: So underlying this, you're not seeing -- you're still
seeing very strong growth obviously in this segment?
A - Steven Berglund: Yeah, we still view this was a very strong growth
segment. I think there is a fair amount of - or there are a number of
facts that are impacting, there is the year-to-year comparisons that are
distorted by the acquisitions being in or out. There are probably some
over time, there will be some depending on timing, there will be some
deferred revenue impacts based on the purchase accounting. I think in
some of these cases and we've been relatively public for example in
Advanced Public Safety, after we - after we acquired them as we stepped
up the spending to be more aggressive in the marketplace. So in some
cases, we let's just say are being patient with models that aren't yet up
to the Trimble average balancing revenue and balancing bottom line. And
so there are a number of effects that are operating in this business. But
I would say is the underlying growth perspective remains very much the
same.
Q - William Benton: Okay. Great guys. Congratulations again.
A - Steven Berglund: Thanks.
Q - William Benton: Congratulations again. Thanks.
Operator: Your next question comes from Jeff Evanson with Dougherty &
Company. Please go ahead.
Q - Jeff Evanson: Good afternoon. Congratulations on the quarter and
thanks for taking my questions. Steve, we are seeing some things out
there in the E&C competitive landscape that suggest there is possibly, I
don't know if it's stress for Leica and Topcon or if it's just attempts
at
initiatives there to build out distribution or do more promotional
financing. Could you talk about what you are seeing in the competitive
landscape and what you feel you are doing in terms of market share in the
quarter?
A - Steven Berglund: So, starting with market share and talking on the
year context is at E&C, we had 20% year-over-year - year revenue growth.
So, I would say, as a matter of again arithmetic we believe we are
gaining market share. We'd like the competition argue over who is losing
it I suppose, but in terms of the competitive structure of the market,
Topcon tends to be relatively unchanging over time in terms of the
competitive approach, aggressive on product innovation, aggressive on
pricing in our view would be less, less pointed towards the solution and
then we consciously are and call more of the product orientation that I
would say is their behavior again over an extended period of time is
relatively, hasn't really necessarily changed in terms of overall
aggressiveness and -- or the way of competing.
I think the interesting one, more intellectually interesting one is Leica
simply because they did go through an ownership change relatively
recently and certainly, I think that they are attempting to let's say
compensate for some of their areas of competitive, well, let's call it
weakness, but so, they are attempting to take some initiatives in the
distribution channel and they are attempting to build distribution and
they have made a couple of acquisitions recently. So, the market remains
dynamic, but I wouldn't say that it is fundamentally altering or that
structurally, it is changing and our response as always is to take the
long view and to keep our values intact relative to product innovation,
building quality distribution, providing a solution which means picking
up the telephone three weeks or four weeks or four months after the
product has been sold and supporting the customer and putting a lot of
emphasis on customer support whether it's through a dimensions users
conference or otherwise. So, yeah, I think there is probably more talk in
the marketplace at this point in time, but I'm not sure that anything has
really structurally changed.
Q - Jeff Evanson: Okay. Stick to your knitting.
A - Steven Berglund: Yeah.
Q - Jeff Evanson: On the @Road acquisitions, I'd give you two questions
and hopefully you can answer at least one of them. First of all, in your
comments as to why you did this deal, you mentioned the quality of the
Trimble products. I got the impression you were telling us, you thought
you could do some cross-selling into the @Road client base. So if you
could, first question, elaborate on the potential for cross-selling
there? And second of all, you've obviously been in there doing more
intensive due diligence and planning, transition planning. Could you give
us an update on how that's looking?
A - Steven Berglund: Okay. First of all, on the cross-selling, I think
there are definitely possibilities and over time, I think there is
potentially significant possibilities in a number of ways. But let me
just point at maybe one example at this point in time. So, TrimTrac,
which arguably is a product that we've struggled with over the last
couple of years a bit in terms of getting the product specs right and
getting it into market effectively. I think @Road, the people at @Road
that we've talked to are actually very enthusiastic about the product and
believe that they know lots of places to put it.
So there is one example of what I would call a cross-selling opportunity
in conjunction with @Road to take what Trimble's got and project it more
aggressively into the marketplace. I think that over time, if we -- as we
look at vertical market space, we're in more vertical market space or
another is that we'll find that there are other opportunities either for
kind of straight up cross-selling of something that exists into new
market space or being able to conceive that new product solutions that
maybe don't exist at this point in time. So, I would say is, again I
don't want to over-promise in the next 12 month context, but certainly
strategically I think there is significant opportunity there for
kind of conventional cross-selling or creating new product categories
that maybe don't exist at this point in time.
As far as the update, giving your two for two here, Jeff, answering both
questions. But update in terms of a transition process, again I'll be
fairly general here, but we've had a series of rolling conversations with
@Road people. They've been generous with their time and their access. I
think we've taken the listen-and-learn approach. And over the next few
weeks, as I think that will start to convert that into specific views and
what to do with the business, I would say that, again emphasizing this
theme that this is not a combination that requires a top to bottom
reengineering is that it specifically does not call for kind of extensive
reengineering that we would expect the ongoing management of @Road to be
done from existing @Road managers, maybe with some changes and emphasis
and maybe some tweaks to structure, but fundamentally this is a matter of
collaboration, this is a matter of combination more than kind of
conventional ideas of integration. So, we've certainly been impressed
with -- there are a lot of smart people over at @Road and we continue to
believe that there are lots of opportunities here.
Q - Jeff Evanson: Okay. And then my last question is it is clear that you
are seeing more revenue growth starting to come out of Europe and Asia
than you saw last year. Could you talk about -- you talked a little bit
about what's driving that, do you expect that to continue in `07?
A - Steven Berglund: Yes. Again, I'm even less proficient in talking
about the macroeconomics outside the US and my limited ability within the
US. So, without making a call on kind of the macroeconomic situation and
assuming that it will remain relatively steady outside the US, yeah, we
would continue to expect strong international growth for two reasons is
that there are a number of robust economies out there and particularly in
things like construction, potentially GIS and others where there is a lot
of development going on and that there is a naturally -- a natural strong
background of market expansion there. But then, I think the other factor
is we are becoming more and more proficient, capable, scalable in those
areas. So, in the last year, we've opened an office, a selling office in
New Delhi. Our China presence continues to grow. We now have
feet-on-the-street -- Trimble feet-on-the-street in South Africa,
selling. So, we were building out our distribution organization and
therefore we were able to more effectively project ourselves into some
these geographies. So overall, I would expect it to continue.
Q - Jeff Evanson: Great. Hi Raj, could you give us sales by geography? I
know you put that annually in the K, but if you could give it to us now,
that would really be helpful for us thinking about that?
A - Rajat Bahri: You want the absolute numbers or you want gross numbers?
Q - Jeff Evanson: Just dollars of sales, for US, Europe, Asia and rest of
the world.
A - Rajat Bahri: I will follow it up with you, Jeff. I don't have the
numbers ready with me, but I can follow up with you, certainly.
Q - Jeff Evanson: Great. Thanks a lot.
Operator: Your next question comes from Jeff Rath with Canaccord Adams.
Please go ahead.
Q - Jeff Rath: Thanks guys. Good quarter. A lot of my questions are being
answered, just a couple of smaller ones. I guess Raj, can you give us any
color with regards to the joint venture contributions here through 2007?
I guess Caterpillar, your JV with Caterpillar looks like it's moved into
more of a - a more aggressive if you will product initiative there. How
do you - how do look at the contribution from your JVs into 2007?
A - Rajat Bahri: So, this year between the two joint ventures we made $7
million, which was a significant increase versus prior year and without
getting specific, we should expect slightly doing better than that as our
sales through the joint venture are increasing over time and the income
of joint venture. So, I am not ready to give you a specific guidance but
in general, it should be $7 million or better for next year. As the joint
venture increases its sales and our profit -- share of that profit
increases, we should start to see -- we should see increased
profitability on that line. Q - Jeff Rath: Okay. Great. With regards I
guess this is another item as it relates to precision agriculture and the
sort of macro environment, particularly around biodiesel fuel demand and
etcetera, does that change the nature of the buyer, the traditional or
your targeted buyer? The sense I have there in that market is the real
compelling value has been for the precision components there has been for
the valued - high-valued crop sort of farmer. In light of the very strong
sort of commodity price environment, do you expect that the sort of the
price points that you need to meet and the build of demand that you
expect as a result of that environment is more aggressive, if you will,
as far as not needing the same performance but needing say, a materially
lower price point. Any color there would be helpful.
A - Steven Berglund: Yes, sure. First of all, I think that the early days
of precision agriculture were very much oriented on -- towards
high-valued crops. So, you saw the early adopters in places like the West
Coast doing specialty vegetables, specialty fruits where it was easy to
justify the investment, they turn out to be the early adopters. Now
starting probably three years ago, I might be half the year but we
consciously took the product to the middle part of the country more
aggressively -- to the middle part of the country, to the Southeast
towards more conventional row crops and so, in reality, the shape of the
market, there may be change of influence, there may be geographic
switches, there may be shifts but fundamentally, again I would not say
that ethanol is a game changer -- fundamental game changer. I think it
shifts maybe points of emphasis but even -- but in terms of the price
point issue, the market really does fall out into two rounds, there is
the high end, which is our Autopilot guidance product, which is a very
sophisticated system on relatively high price point and then there is the
Lightbar market, which arguably is more price competitive.
So, where we have been for the last year may be longer than seeing the
real dynamics is at the high end - the high end is actually the more
dynamic, more buoyant part of the market at this point in time. And that
goes for kind of the row crops, corn and other crops that we were talking
about as well as for the high value. So, in reality, there is a point of
market emphasis shift here but it's actually towards the high end because
of the -- because farmers are now beginning to understand the value of
their application and are getting more confident on the return on
investment calculation. So what we have actually seen in terms of
relative robustness of the market, we have actually seen a shift towards
the high end from the low end and I would say that applies to let's call
these lower value row crops and -- as equally as it does to the high
precision. So, we are not anticipating any kind of fundamental market
share so as a result of the ethanol initiatives.
Q - Jeff Rath: Great. That's a good color there. Just a couple of quick
ones here. I am not sure if you broke it out Raj, specifically in the
fourth quarter, what did acquisitions contribute to revenues on a
year-over-year basis?
A - Rajat Bahri: Acquisitions in the Q4 period have contributed around 3
to 4%.
Q - Jeff Rath: 3 to 4% of revenues?
A - Rajat Bahri: Yes.
Q - Jeff Rath: Got you. Great. Thanks very much. That's it.
Operator: [Operator Instructions]. Your next question comes from Eli
Lustgarten with Longbow Security.
A - Steven Berglund: So, Eli, before you get into the question, I just
want to clarify Jeff Rath's questions from Canaccord. So, I just want to
make sure that of the 25% growth, 3 to 4% was - 3 to 4% of the growth was
driven by acquisitions. So, I just wanted to make that clear. I just want
to make sure that got across clearly. Go ahead Eli.
Q - Eli Lustgarten: Yes, okay, just - he answered a lot of the questions
I was going to ask. I want to get a couple of clarifications, one, the
R&D tax credit was how much in the quarter?
A - Rajat Bahri: So, it's - R&D tax rate is not that big for us. So, it
reduced our rate by 1%, so if we hadn't gotten our credit, we would have
been around 26% versus 25.
Q - Eli Lustgarten: So, the bigger part of the dropping of the tax rate
would be international settlement.
A - Steven Berglund: That is right, that's correct.
Q - Eli Lustgarten: The R&D was very small, okay. So that helps. Maybe
the joint venture properties, is there any reason why the joint venture
gains in `07 shouldn't be at least equal to the corporate gains in the
other sectors? It would seem that it feeds right into the natural product
mix that's where the market is going. So, I mean if you have a revenue
that you're indicating of double-digit, why wouldn't you get double-digit
gains in the joint venturing business? Was that an unfair solution?
A - Rajat Bahri: E&C is a combination of survey construction and it
depends upon how construction grows because primarily joint venture is on
construction side of things, so it does depend, so you can't just
correlate all...
Q - Eli Lustgarten: Yeah, but the implication of the revenue gains in the
guidance for the rest of the year excluding @Road is a low double-digit
volume gain. And there is no reason to assume that construction wouldn't
be at least as - I mean. Because I wouldn't be as good as the overall
guidance at this point, particularly, the markets that - so I am just
asking is there any reason why if that holds true that the joint venture
income wouldn't be a similar type of gain.
A - Steven Berglund: Yes. And it also depends upon what R&D development
they are doing and so forth too. So, in concept, you are right but I
won't say it's just directly correlated because there is other businesses
plus depending upon what R&D development is going on in the joint
venture, so you couldn't say that it's total 100% correlation.
Q - Eli Lustgarten: Yeah. We are also all interested in the breakdown of
overseas sales and profitability but, as a rough guide, can you give me
what percentage of the sales for `06 was outside the United States?
A - Rajat Bahri: But I can tell you in Q4, we had around - out of North
-- outside North America, 40% of the sales were outside North America.
Q - Eli Lustgarten: And that's probably - is that close to the year too
or is the year a little lower than that?
A - Rajat Bahri: Year is going to be slightly higher than 40%.
Q - Eli Lustgarten: [inaudible] that's sort of the mix at this point. As
far as the -- I'm sorry.
A - Steven Berglund: Let me interrupt just to kind of make a big point
here because there are multiple effects that work here. So, TMS at the
moment is growing very rapidly, virtually all of that growth and in fact
all of that growth is occurring within the US. So, to see the kind of the
robustness
else of the overall company implies, I think as a matter of logic that
what we are seeing in the segments that have strong international
representation in the E&C segment, the TFS segment, in particular what we
are seeing is very strong international growth.
Q - Eli Lustgarten: Okay. Thank you. When we're talking a bit about the
Ag business and the turn up, if we take a convention wisdom which is the
Ag trends up in the second half of `07, is that -that should be a
favorable product mix and a favorable profitability for the division,
wouldn't it for TMS and the TFS?
A - Steven Berglund: Yes, I guess if the promises, the market improves,
yes, we -- it's definitely going to positively impact us if the trends
continue.
Q - Eli Lustgarten: On your favorable product mix that enhances the
profitability of the business.
A - Steven Berglund: Yes, so I think we are confident in our product mix
at this point in time. We are secure at the high-end, we have secured a
stronger position in the low-end, so from a product mix standpoint going
into 2007 in Ag, we are confident that whatever the market throws at us,
we are as well positioned as we can be from a product standpoint.
Q - Eli Lustgarten: And one final question, both the Trimble Mobile
Solutions and the Advanced Devices had sequentially much lower
profitability than we have been seeing for the year, I mean other
investment sort of thing, what can we expect for `07 in both those
operations -- from both of our top-line and our profitability and are we
seeing similar growth top-line and profitability?
A - Steven Berglund: Taking them separately for TMS -- and again, we
don't give guidance by segments, so I will talk in general terms here.
TMS -- well, TMS, as a segment or let's call it the Mobile Solutions
segment, once we filter in the @Road effects is going to reflect
prodigious growth in 2007 at the revenue line, I think there will be -
there will be -- at the bottom-line, there will be volatility for
two-three quarters here during the transition process and then as the
accounting effects filter though. So, I can definitely say there will be
prodigious growth at the top-line and we will have to kind of carefully
recount what's going on once we have closed the...
Q - Eli Lustgarten: I don't know [inaudible].
A - Steven Berglund: Pardon me, sorry.
Q - Eli Lustgarten: ....I was trying to do it before we put @Road into
the numbers.
A - Steven Berglund: Yes. So, again I would characterize Mobile Solutions
organically has been very strong double-digit growth and again, we run
the business with this concept of operating leverage dropping a
significant portion of that revenue growth to the bottom line, so I think
what you can expect before the transition and before the transaction is
strong double-digit growth in the company and with operating earnings
growing up - growing much more rapidly than the actual revenue growth
that that's the model here. And then, relative to Advanced Devices, again
this is not a business where we are telegraphing significant revenue
growth. So, I would say that what you have seen for the last couple of
years, you kind of blend it, would be our relatively conservative view on
that. We are doing a number of things on product front, and whatever.
There may some upsides from that, but I think given our experiences over
the last couple of years, I think that the expectation is that our
revenue growth will be pretty much steady looking forward, and then I
think that bottom line, there are some year-to-year anomalies here and
some one-time effects. But I would consider all in -- kind of operating
margins will probably continue to be relatively steady.
Q - Eli Lustgarten: Okay. All right. Thank you very much.
A - Steven Berglund: Okay.
Operator: We have a follow-up question from John Bucher with BMO Capital
Markets.
Q - John Bucher: Thank you very much. Steve, I have just got a quick
question for you on the combined TMS @Road. You talked about pretty big
top line growth prospects. So, from a business capacity standpoint, once
you do -- finish all the integration with respect to back-end systems and
not related stuff and the like, do you see any scalability limits to the
fixed asset base that's kind of be there or should that be something that
you can keep adding revenues to for quiet sometime? And then also from
the standpoint of the network reselling agreement that might be employees
for those subscribers that do not directly with the carriers, do you get
any type of -- do you anticipate down the road any type of better pricing
power from the standpoint of securing packets for wireless transport type
down the road? Thanks.
A - Steven Berglund: Okay. So, relative scalability, I think -- clearly
one of the attractions of this business to us is the fact that we believe
it is highly scalable. So we would expect the need to add fixed
infrastructure will go up better rates significantly slower than -- in
dollar terms significantly slower than the ramp up the business. So, the
implicit or explicit -- I guess more explicitly in our modeling is a high
degree of scalability. It is the promise of this particular market is
that it is scalable. So, we certainly are anticipating a high degree of
scalability and without the need to invest at a rate commensurate with
sales. Relative to better pricing, I guess all I can say at this point of
time is we will see but certainly whether the -- the buying of their kind
or others, but I think that what we do see is the ability to impact the
economics of business as a combination, but I will get and then I will
talk about it if that is maybe possible. So I would have no particular
view at this point in time whether there is a pricing argument here or
not. I do not think we are counting on it, but if we can get it we will
certainly get it.
Q - John Bucher: Thank you very much.
A - Steven Berglund: You are welcome.
Operator: Your next question comes from Rich Valera with Needham. Please
go ahead.
Q - Rich Valera: Thanks, a spillover for Rich. I just have two quick
questions. First Raj, the gross margin in the fourth quarter at the
corporate level was essentially potentially flat. Sequentially it looks
like the previous couple of years it was down over a percent. Was that
primarily due to the acquisitions in the fourth quarter, software
acquisitions?
A - Rajat Bahri: Yes. If you look at sequentially Q4 to Q3 you are saying
it has done but this quarter it was flat?
Q - Rich Valera: Yes.
A - Rajat Bahri: Primarily because TMS is becoming bigger and bigger part
of our business and the subscription revenues are coming at higher gross
margins and that is kind of driving that phenomena.
Q - Rich Valera: Gotcha. And then just one last question, Steve, the
obstruction of GPS going as for [inaudible] in 2006 a significant driver
in the survey market or was it just incremental? Thanks.
A - Steven Berglund: I would describe this as incremental. Any new
product gives you something -- I guess you advised motor vehicles sales
force, but I would in general call it incremental. It did improve
performance, so having more satellites in the sky did improve
performance, so gave us something to talk about. But I would in general
say, you know the
fundamental capabilities of the product in terms of what it does - didn't
materially change. It was a more or about a solution by and large. So I
would describe the effects as incremental and not necessarily step
function type offence.
Q - Rich Valera: Thanks.
A - Steven Berglund: You are done?
Operator: At this time there are no further questions. Thank you for
joining in the call. Will there be any closing remarks.
Steven W. Berglund, President and Chief Executive Officer
-------------------------------------------------------------------------------
No. Thank you all for attending and I will talk to you next quarter.
Operator: This concludes today's conference call, you may now disconnect.
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AND WHERE TO FIND IT
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