Schnitger Corporation

Hexagon continues to improve; Q1 revenue up 10%

Hexagon continues to improve; Q1 revenue up 10%

May 4, 2021 | Hot Topics

Hexagon reported results last week that were surprisingly good and that –remember that Hexagon doesn’t itself issue guidance– beat analyst consensus. The details:

  • Total revenue in Q1 was €978 million, up 10% as reported and up 11% on an organic, constant currency (occ) basis. That’s 4% above consensus, especially significant considering that CEO Ola Rollén said the company saw a 5% currency headwind, as the Euro contracted against the US Dollar and Chinese renminbi
  • Overall, the company reports seeing an acceleration in Europe and China. By geo, revenue was up 27% occ in Asia, up 10% occ in EMEA and flat in the Americas. In Asia, China recorded 73% occ growth, in part due to easy comparables (a 40% contraction a year ago) — but also driven by a strong recovery in manufacturing, infrastructure, and construction. South Korea, South-Eastern Asia, and Australia recorded solid growth, while Japan and India declined on weak demand in manufacturing in Japan and weakness in the power and energy sector in India.
  • In EMEA, revenue from Western Europe was up 7% occ, on strong demand in the surveying, infrastructure, and construction segments. The manufacturing and power and energy segments sequentially improved and recorded a low single-digit decline. Russia and Eastern Europe recorded high double-digit organic growth.
  • In the Americas, North America reported a 1% occ decline partly due to a strong quarter a year ago but also on weakness in the aerospace and power and energy segments. The surveying and infrastructure and construction segments recorded solid growth in the region. South America recorded high single-digit growth supported by a solid development in the agriculture, power and energy, and public safety segments. Regarding North America, Mr. Rollén said that he sees an “automotive sector that is improving month-by-month. Aerospace has been weak up to now. But I think, we do believe that aerospace has hit bottom and is slowly recovering”.
  • Below is the graphics Mr. Rollén shared about how each industry sector performed in each region — I don’t think he expects us to draw anything meaningful from it, other than that the sales environment right now is not consistent in any way (click on the graphic to go to the entire earnings presentation):
  • By industry bucket, Geospatial Enterprise Solutions (GES) reported revenue of €503 million, up 11% (up 13% occ). On an occ basis, revenue was up 30% in organic growth in Asia (boosted by a 79% occ growth in China), up 17% in EMEA, and up 3% in the Americas.
  • Revenue from Geosystems was up a “fantastic” 22% occ, on “robust global activity in construction and infrastructure markets plus increased demand for new solutions” such as the Leica BLK series
  • Revenue from Safety and Infrastructure was down 2% occ, as growth in public safety couldn’t offset weakness in defense.
  • The Autonomy & Positioning division recorded a revenue decline of 2% occ, impacted by order delays from defense customers and a weak automotive market. Even so, the agriculture business continued to record strong growth
  • The Industrial Enterprise Solutions bucket reported revenue of €475 million, up 9% (up 8% occ). By geo and on an occ basis, revenue was up 25% in Asia (with a 70% increase in China), up 1% in EMEA, and down 4% in the Americas.
  • Manufacturing Intelligence “recovered strongly in the quarter,” with revenue up 12% occ, driven by demand in China, a recovery in the automotive sector
  • PPM revenue was down 4% occ, as it continues to face a challenging oil and gas market. Mr. Rollén did say that PPM saw solid growth in asset information management, the newly-acquired cybersecurity offering, and the growing AEC portfolio. Mr. Rollén believes that PPM will return to growth, “but it’s probably a story for the second half of this year and not in Q2.”
  • Mr. Rollén said that the software portfolios continued to record favorable growth, without offering much detail. In response to investor questions, he said that “software grew at roughly 5% organic growth on a base that didn’t see as much contraction a year ago” but it’s clear that if overall revenue grew 11% and software grew at 5%, then hardware outgrew software in Q1.

Mr. Rollén highlighted a few new products that will be launched in 2021, including a partnership with Boston Dynamics to put an autonomous reality capture solution into the market that combines Spot (the dog-like robot) with Hexagon’s Leica solutions. Right now, humans walk or drive reality capture stations around an asset; with Spot (and other, coming robotics solutions), Hexagon hopes that infrastructure, defense, industrial facilities, and safety & security benefit from the automation of repetitive scanning tasks. More here.

Since I know many of you are interested in MSC Software, it really only came up twice. Mr. Rollén spoke about how the University of Perugia in Italy, is using Hexagon’s multibody dynamics software to study accidental falls in the construction industry. Perugia is using biomechanical analyses to model the initial position and force of a fall based on the final location of the body. On a less downbeat note, he also gave Hyundai as an example, where simulations of gearbox models and full-system analyses earlier in design drive time and cost savings.

And M&A. Always M&A. Mr. Rollén said that “M&A might happen … Prices are still high for quality assets. If you’re looking for a SaaS business with recurring revenue and a strong double-digit margin, then you have to pay a lot for those assets. That seems to continue into 2021.”

Mr. Rollén doesn’t issue forecasts but did say that Hexagon has big product launches planned for Q3 which will result in “relevant numbers” in Q4. It seems that financial analysts are modeling total revenue for 2021 of around €4.1 billion, which would be overall growth of 9% or so. For Q2, the consensus seems to be for revenue of €1 billion, so a slight sequential increase and a year/year increase of around 12%.

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