Ark Investment Management CEO Cathie Wood appears to like positioning and workflow technology company Trimble (NASDAQ: TRMB). It's the largest holding in the Ark Space Exploration & Innovation ETF, and the fourth-largest in the Ark Autonomous Technology & Robotics ETF. Wood is known for buying into companies with disruptive technology, and that's certainly the case with Trimble. Here's why Trimble could be a great addition to a diversified portfolio.

Disruptive technology

Trimble's disruptive technology comes from its growing capability to become a daily part of its customers' workflow. Whereas the company's history lies in hardware solutions that provide precise positioning, its future lies in supplanting that with modeling and data analytics capability to improve its customers' daily activity.

Trimble does more than provide precise points for a road or an infrastructure project. The company's solutions, such as Trimble Construction One (TC1), allow customers to design and precisely manage projects while receiving and analyzing real-time workflow data.

Disruptive valuation

Trimble's future lies in growing its subscription and services revenue, and this tends to be a higher-margin activity; Trimble's margin should grow over time. In addition, the company's transition means the critical metric to follow isn't so much its revenue and earnings as its annualized recurring revenue (ARR) and free cash flow (FCF).

ARR refers to the annualized value of its "subscription, maintenance and support, and recurring transaction revenue," representing its recurring revenue. As ARR grows, it will drop down into the cash flow line -- a common concept among companies growing their recurring revenue.

The following table shows the disparity between Trimble's revenue and ARR growth. The former implies mid-single-digit growth, while the latter suggests Trimble aims for mid-teens growth.

In case you are wondering just how strong Trimble's ARR growth is, one answer comes from management's discussion on the recent earnings call. As mentioned earlier, within its architects, engineers, contractors, and owners (AECO) end market, CEO Rob Painter said he sees Trimble's TC1 as "a commercial framework around prepackaged bundled offerings."

Consequently, Trimble can sell more software to customers within that framework as it develops new solutions and customers utilize its technology more. This also helps the company cross-sell solutions, and Painter noted, "As measured by cross-sell activity, more than 20% of 2023 annualized contract value, or ACV bookings and AECO were cross-sell bookings. In the fourth quarter, this number accelerated to over 25%".