Hexagon’s solid Q4 sets up digital reality focus for 2022
Hexagon announced its fiscal 2021 results last week and some management changes this week. A quick recap of the news, then some thoughts:
- Total revenue was €1,217 million, up 7% on an organic constant currency (occ) basis and up 17% as reported
- By business line, Geospatial Enterprise Solutions (GES) revenue was up 5% occ (up 10% as reported) to €587 million. Within this, Geosystems revenue grew 7% occ, on strong demand across industries but slowed down by supply chain issues. Safety & Infrastructure revenue was down 4% occ on delayed US defense orders, offset slightly by growth in public safety. Revenue from Autonomy & Positioning was up 8% occ, on demand for precision agriculture, but again hampered by supply constraints
- Industrial Enterprise Solutions (IES) revenue was up 24% as reported (up 8% occ) to €630 million. Within that total, Manufacturing Intelligence revenue was up 9% occ, on a “broad-based recovery in automotive across geographies and solid demand for design & engineering software.” PPM revenue grew 8% occ, “driven by growth in asset information management and AEC portfolios”
- A bit more detail on IES: Revenue was up 14% occ in the Americas, up 10% occ in EMEA and up 3% occ in Asia, and up 4% occ China despite tough comparables to a year ago, when manufacturing reopened there with a bang. Revenue from Western Europe was up 9% occ, on solid demand in manufacturing and automotive, and recovery in power and energy. Russia and the Middle East recorded double-digit organic growth, but Eastern Europe declined in the quarter. Revenue from North America was up 11% occ, driven by a recovery in automotive, power & energy; solid demand in general manufacturing, and an improvement in aerospace. South America recorded double-digit growth on a continued recovery in the power and energy segment. So many moving parts!
- And one more IES bit: Hexagon said that the IES operating margin was 32% (as compared to 29% in Q4 2020) because of “volume growth, a richer product mix, and the Infor EAM acquisition.” As a result, the pperating income from this segment was up 39% to €201million — the power of those software products and increasing subscriptions starts to make itself known
- Finally, the integration of Infor EAM is “progressing well” with SaaS revenue growth of 42% in Q4. To recap, Infor EAM is a SaaS-based solution that is used to track assets, digitalize maintenance and enable customers in nearly any industry to operate their assets more efficiently. Hexagon has included Infor revenue in its books from 1 October; that means that in Q4 and for 2021, Infor’s EAM business contributed €38 million to sales in 2021. Hexagon also said that, If the acquisition had taken place at the beginning of the year, the contribution to sales would have been €151 million
That Q4 brings total FY21 revenue to €4,347 million, up 12% occ and up 16% as reported. You can read much more about the results here.
Even as Q4 was the best in Hexagon’s history as measured in sales, operating earnings, and profitability, the company said that supply chain issues and component shortages reduced sales and organic growth by 6%. Remember that Hexagon is somewhat unique in our PLMish world in that it has a significant hardware business in laser scanners and other devices. This inability to deliver reduced revenue and growth, but increased backlog, which means that Hexagon starts the year with a solid order book. The company says these issues continued into Q1 2022 but sees improvement coming later in the first half of 2022.
CEO Ola Rollén said that the outlook for 2022 is unpredictable, but that “we’re starting 2022 with ambitious five-year financial targets.” Those were announced at the 2021 Capital Markets Day: average revenue growth of 8% to 12% per year, which includes 5% to 7% of organic growth and the rest via acquisition. Hexagon doesn’t give more detailed forecasts, so let’s take about that acquired growth.
In 2021, Hexagon acquired 6 companies: CADLM, makers of ODYSSEE CAE, a platform that allows engineers to apply machine learning, reduced-order modeling, and design optimization to workflows — perhaps positioning Hexagon to provide reduced-order models for IoT and other applications; Immersat, maker of spatial mapping and visual positioning solutions; Infor’s EAM business, by far the biggest and likeliest to contribute significantly to growth; Jovix, a provider of material tracking software; Mecadat, a VISI CAD/CAM distributor in Austria, Germany, Poland, and Switzerland and ZGTech, maker of metrology-grade 3D scanners. Without specifics except for Infor, it does appear that this acquisition strategy is working — these acquisitions seem to have brought 4% or so to the overall total even with the largest only coming in at the end of the year.
The list above makes clear: Hexagon continues to shift to software. Mr. Rollén told investors that “software outgrows hardware in this quarter” — with one investor pressing on an implied software growth in the mid-teens in Q4. Mr. Rollén didn’t say that’s what it was but didn’t correct the investor either.
Quickly because this is already long: Hexagon made some leadership changes to better focus on its Smart Digital vision. Juergen Dold becomes an EVP and will “oversee [the] content and platforms necessary to power and operate Smart Digital Reality applications and experiences that empower growth within Hexagon’s existing markets and offer rapid expansion into new market segments”. Thomas Harring will assume responsibility for Hexagon’s AEC businesses, including the HxGN Smart Build (which had been part of PPM and reported under IES) as well as Hexagon’s reality capture and visualization solutions. It’s not clear to me what this will do to PPM’s reported revenue but we’ll find out next quarter. Then, yesterday, Hexagon announced that Paolo Guglielmini, who was most recently President of the Manufacturing Intelligence division, has been appointed Chief Operating Officer for Hexagon. (He remains in charge of MI until a successor is appointed.) Former COO Norbert Hanke becomes an EVP in charge of Hexagon Ventures, HR, IT, the India R&D, and Sales organizations. Periodic management shuffles are nothing to worry about — stay calm, everyone.
OK. TL;DR. So what does it all mean? Hexagon set revenue and profitability records in Q4, even with component supply shortages. Geosystems and Manufacturing Intelligence grew by 7% and 9%, occ. PPM continued to recover, with revenue up 8% occ, which appears slower than the mid-teens posited by the investor I mentioned above — but perhaps that’s not the right way to look at things at Hexagon. Mr. Rollén said that the PPM opportunity is actually “the combination of SDx [PPM’s data management platform], EAM [asset management] and the reality capture that we can do with, among others, BLKARC and BLK2FLY [Hexagon hardware].” This has been Mr. Rollén’s endgame all along: combining sensors and software assets in offers across his end industries. Using today’s buzzwords, to build and use digital twins. He outlined the PPM play, but we can assume similar concepts for automotive, aerospace, public safety, and the rest. The organizational changes reflect this focus–let’s see what 2022 brings.