Hexagon just announced Q2 results that showed modest growth overall and a decent contribution from the recently acquired MSC Software. PPM continues to struggle, but CEO Ola Rollen said in the earnings material that he expects the business to return to growth towards the end of the year.

The details (more here):

  • Reported total revenue in Q2 was €865 million, but the company based its breakouts and remarks on a total operating revenue of €874 million that includes €9 million in revenue from MSC that can’t be recognized by Hexagon. Including that €9 million, revenue was up 10% while on an organic basis and in constant currencies (cc), revenue was up 3%
  • By line of business, revenue from Geospatial Enterprise Solutions was €430 million, up 8% as reported and up 4% cc. Geosystems revenue grew 5% in Q2, driven by machine control solutions and sales to the infrastructure and construction vertical. Safety and Infrastructure revenue was up 1%, driven by Hexagon’s Smart City initiative and the sale of safety solutions in Asia. Positioning Intelligence revenue was up 7% on strong demand in agriculture and defense, offset by weaker demand from the offshore oil and gas offshore market. Looking at this business geographically, revenue from Asia was up 7% on solid demand in China; revenue from EMEA was up 7% on strong demand from Spain, Italy, France and UK; revenue from the Americas was flat due to  the strong quarter a year ago
  • Revenue from Industrial Enterprise Solutions was €444 million, up 12% (up 1%). Revenue from the Manufacturing Intelligence part of the business was up 6% due to strong demand from the electronics vertical, offsetting weakness in the automotive and aerospace industries. PPM revenue was down 11%, in part due to a “one-time revenue impact of -5 MEUR following a comprehensive review of ongoing projects” and the ongoing weakness in the shipbuilding industry in Korea and Japan. The company expects PPM to gradually recover and return to growth towards the end of the year. In this part of the business, revenue from Asia was up 9%; from the Americas, down 1%; and from EMEA, down 6%
  • By geo, cc, revenue was up 8% in Asia, up 1% in EMEA and flat in Americas

One thing I had lost track of is Hexagon’s incredible pace of acquisitions. According to its Q2 report, the company acquired the following in the first half of 2017:
1. MiPlan Ltd, a provider of mobile software applications to increase productivity in mines, based in Australia
2. IDS Georadar Australia, a distributor of structural health monitoring solutions
3. MSC Software, a US-based provider of computer-aided engineering (CAE) solutions
4. Catavolt Inc, a US-based mobile app platform provider
5. VIRES GmbH, a German-based provider of simulation software solutions
6. DST Computer Services S.A., a developer of piping stress analysis solutions for the nuclear industry, based in Switzerland
7. FASys GmbH, a German developer of machine tools management software
8. IDS Georadar North America, a distributor of structural health monitoring solutions, based in the USA
9. InfraMeasure Inc, a US-based provider of measurement solutions for railroad and tunneling applications

The descriptions are verbatim from the report, so take a look at the areas of focus. Mining, structural health monitoring, machine tool management, railroad and tunneling, nuclear piping stress simulation and general-purpose CAE with a focus on automotive/aerospace/manufacturing industries. It’s an eclectic mix that gives us glimpses into Hexagon’s strategic direction: no acquisitions for oil and gas, building out an infrastructure management portfolio, the mining industry will improve and be an growing part of Hexagon’s business, mobile delivery is increasingly necessary even for staid industries, and simulation will play an increasingly important part across Hexagon’s end-industries. Interesting, no?  All of these, with the exception of MSC, are technology tuck-ins with no material impact on Hexagon’s revenue.

Speaking of MSC, that deal closed April 26, 2017. Hexagon says that, from the date of acquisition, MSC contributed €39.3 million in of net sales to revenue for the first six months of 2017. If the acquisition had taken place at the beginning of the year, the contribution to net sales would have been €99.8 million.

More after I’ve had a chance to listen to the earnings call.

Quickie: Hexagon’s Q2 shows continued weakness in PPM

Jul 28, 2017 | Hot Topics