ELDs are drag on Trimble’s fourth-quarter earnings

Although ELDs are not the only activity in Trimble’s transportation segment, the weakness of the group was clear in the quarterly report. Though revenue increased to $206.1 million from $197 million, non-GAAP operating income before corporate allocations fell to $30.6 million from $44.4 million. Margins declined to 14.8% from 15.9%.

“Supporting multiple platforms has proven to be a larger than anticipated R&D and customer migration support effort,” Painter said. “This resulted in higher expenses and customer churn, which is negatively impacting margins and (annual run rate).”

Painter said Trimble has “brought a number of new leaders into the business and we are more proactively migrating customers from old technology platforms to new technology platforms.” 

The financial guidance provided by Trimble called for first-quarter negative growth of minus 3% year-on-year. While the impact of the coronavirus was cited as a main cause, it also pointed to “costs associated with meeting the demands of the ELD mandate.” 

David Barnes, Trimble’s CFO, also cited in his forecast “incremental costs primarily in the first half of the year to upgrade customers to newer technology platforms related to the ELD mandate.”

In response to a question from Ann Duignan of J.P. Morgan, Painter said the transportation segment had “5 points to 6 points of degradation” because of ELD costs.

Painter cited three factors hitting ELDs: a “compressing” of hardware margins “toward the end of the second phase of the mandate going into effect,” presumably the end of the automatic on-board recording device (AOBRD) exemption in December; a set of one-time costs “like over-the-air updates, which drive cellular bills up”; and a “bit of a churn in the business that hit the fourth quarter.”

The outlook for 2020 is for the ELD business to continue to be a drag, Painter said. Revenue and profitability for the company as a whole won’t be much different this year than last year, even though there are segments that are “improving and growing,” he said. But there will be “somewhat of an offset in the ELD side which neutralizes that.”

Efforts have been undertaken to right the business “that’s all in the service of getting the 2021 results in line and protecting the long tail subscriber base that we have.”

Trimble made a significant acquisition last month when it acquired Kueblix. The broad goal driving the acquisition was integration of Trimble’s transportation business, aimed at carriers, with the extensive network of shippers served by Kueblix.

Painter said had Trimble not acquired Kueblix, it would have attempted such an integration backward into the shipper network. “The next logical place … is this connectivity between the shipper and the carrier,” he said. In the short term, the Kueblix acquisition will be negative to earnings, Painter added, but it is another step in Trimble’s digitization drive. 

Despite the drag from the ELD business, Trimble overall did well. Its non-GAAP operating income was up 4% from the fourth quarter of 2018. Its non-GAAP operating margin was down slightly to 21.6% from 21.7%, and the drop in ELD margin would have been a factor there. Non-GAAP net income was $134.1 million and that was up 10% from 2018’s fourth quarter.