Rob Painter
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.
Let's begin on Slide two with our key messages. Annualized recurring revenue is our key top line metric at Trimble. Our team led by our construction software group achieved 13% organic growth in the quarter, 100 basis points ahead of our expectations.
We now stand at $1.65 billion of ARR, which compares to $1.2 billion when we began our Connect and Scale journey in 2020 and under $700 million at the beginning of 2017. Kudos to the Trimble team who have worked so hard to execute on our transformation.
EBITDA is our other key P&L metric, and we delivered EBITDA of 27.2%, also slightly ahead of our expectations, which was driven by record gross margins of 64.2%. For perspective, gross margins in 2019 were 57.7% and 56.3% in 2016. Free cash flow conversion of 1.14 times was also ahead of our expectations.
I recognize that consensus numbers and the trading algorithms both still focus on total revenue and EPS. While these figures are important, they are secondary in relevance to ARR and cash flow, which are much more closely tied to fundamental value creation. Revenue and margins were both above expectations we set with the investor community back in February.
We believe the delta to consensus figures was simply a function of the challenge in getting our quarters mapped correctly against our annual guidance. As a result, we will be more prescriptive with our second quarter commentary. With respect to the macro, like most companies, we are navigating an economic environment with a heightened sense of uncertainty trying to find the signal through the noise. Despite the noise, what we sell to customers is productivity, quality, safety, transparency, and environmental sustainability.
The mid-to-long term secular tailwinds remain strong in the industries we serve. They are large global industries that are underserved and underpenetrated and they will continue to digitally transform. Our strategy compels us to be mindful of our cost structure in the short-term, while continuing to invest in our most attractive long-term opportunities.
With respect to capital allocation, there are three main points. First, we divested three small businesses in the first quarter, bringing the total to 16 since 2020. Second, our recent B2W and Ryvit deals are both off to a strong start and performing ahead of expectations. Third, the investment we are making in our business transformation has initially been focused towards our software businesses. $1.65 billion of ARR growing double-digit in this climate as a proof point of high quality capital allocation.
We are transforming our go to market motions to deliver bundled and connected solutions, while building the systems and processes to efficiently and effectively scale our business. At the company level, we think about our Rule of 40 as the sum of ARR growth and EBITDA margin, which represents our aspirational bar.
Many of our software businesses have already cleared this hurdle, while others are steering this direction. Looking at our hardware businesses, this is where we have felt the whipsaw of supply chain availability and channel inventory stabilization, which continues to make quarterly comparisons of our numbers incomplete at best. To find the signal, you have to look at a multi-year view.
Our largest hardware businesses and agriculture civil construction and geospatial, collectively grew revenues at a mid single-digit rate from the first quarter of 2019 through the quarter of 2023. In the first quarter, channel inventories continued to draw down, thus retail demand significantly exceeded wholesale demand.
Moving to Slide three, let's look at the progression of our Connect and Scale strategy through the lens of our reporting segments beginning with buildings and infrastructure. Market backdrop generally remains healthy. In North America, we see strength in infrastructure and non-residential construction such as data centers, renewable energy, and manufacturing, slightly offset by pressure on residential.
Customer backlogs remain healthy and technology helps to address the skilled worker shortage. By the numbers, ACB bookings grew double-digits in the quarter and ahead of plan, while ARR grew in excess of the company growth rate. Our Trimble Construction One commercial offering is helping to grow new logo and cross-sell bookings and our next wave of systems automation will be released in the next few weeks.
Through the lens of strategic progression, customer wins at England's National Highways and the Norwegian Public Roads Administration demonstrate customers want integrated Trimble offerings. At CONEXPO, our technology was present on 20 OEM booths, demonstrating the continued relevance of the mix fleet.
In our introduction of an all-in-one system for on machine excavator guidance insight serving, demonstrates that we can continue to expand the size of the addressable market by virtue of reaching new machine categories. In geospatial, the market backdrop is generally the same as buildings and infrastructure with a higher mix of residential exposure, which presents a headwind.
Managing channel inventory levels is a priority in this segment. By the numbers, revenue was ahead of our internal expectations in the quarter. Strategically speaking, we continue to see strong demand from U.S. State Department of Transportation and we see product lines such as mobile mapping showing solid growth. In resources and utilities, while farmer sentiment has been dropping, the market fundamentals continue to be healthy.
Commodity prices remain high by historical standards and input costs are moderating. Strategically speaking, we are on the path towards building out our aftermarket distribution and agriculture. We believe in giving farmers a choice in their technology platforms and we believe in the power of independent technology dealers where we have the direct relationship.
While there's a lot of work ahead of us, feedback from current and prospective partners is positive, We know how to build and manage a channel that reference our SITECH model in civil construction and a similar initiative in our geospatial channel as case studies and excellence of channel development.
In the quarter, we also announced advanced path planning technology, which takes us a step further on the path toward fully autonomous equipment for a variety of industries. In our positioning services business, we announced that Nissan has gone live with the most advanced driver assist system to date, which is enabled by Trimble positioning technology. This is another example of Connect and Scale, taking a core Trimble technology and applying it across new and existing verticals. By the numbers, we were largely unplanned this quarter.
In transportation, the market backdrop is very dynamic with a softening freight market pressuring carriers to find new frontiers of efficiency which technology can help address. By the numbers, we met our expectations in the quarter and we have delivered five sequential quarterly increases and operating income as a percent of revenue.
Strategically speaking, we are making progress with our new In-Cab technology platform, which delivers the open platform that our customers have been asking for. We launched new functionality in the quarter, including the first industry dwell time metrics for fleet management, which provides customers with additional metrics they can use to improve their operational efficiency.
The biggest news for us in transportation was closing of the Transporeon deal on April 3. I've described this business as a perfect example of a platform play within our strategy. The why, comes in the form of a network of over 158,000 carriers and over 1,400 shippers transacting approximately EUR55 billion of freight on an annual basis. Every day, over 110,000 transports and over 100,000 dock scheduling appointments are managed on the Transporeon platform.
Slide four provides a summary overview of how we see the complementary aspects coming together to create a stronger franchise in the form of complementary capabilities, customers, and geographic reach. The business model of Transporeon is fundamentally a consumption based model based on an array of transaction fees. Since we announced the deal in December, demand in Europe has slowed. And the mix has shifted towards a greater percentage of contract over spot transactions, which are monetized at a lower rate.
Our guidance reflects what we believe is a de-risked 2023 level of dollar denominated revenue, approximately 10% below what we communicated in December. While this is disappointing, there are also positive signals. Bookings are still expected to grow well over 30% for the year. Market share is holding, customer churn is almost non-existent and our tax rate assumption improved and cross-selling opportunities with Trimble are looking stronger than they did just a few months ago.
Let me now turn the call over to David to take us through the numbers.
