Hexagon’s Q2 revenue up 6% occ on strong demand across verticals and geos

Hexagon reported results this morning that blew past analyst expectations. Total revenue in Q2 was €1,289 million, up 20% as reported and up 6% on an organic and constant currency basis (occ), beating analyst consensus. Happy investors.

By business group, Industrial Enterprise Solutions (IES) revenue was up 6% occ. Within IES, Manufacturing Intelligence revenue grew 6% occ, with demand in the Americas, with “solid business momentum” in aerospace and general manufacturing. Asset Lifecycle Intelligence (fka PPM) revenue grew 5% occ on demand for design solutions by engineering firms and asset information management software. CEO Ola Rollén said that the oil and gas sector is becoming more positive as the war in Ukraine puts pressure on supplies and drives renewed investment. He is cautiously optimistic about Hexagon’s prospects in oil and gas.

Mr. Rollén also gave an update on Infor EAM, saying the integration is on target and that the company is now receiving the first orders for combined products. The integration of ETQ has gone “remarkably well,” and synergy projects are underway there as well.

Geospatial Enterprise Solutions (GES) reported revenue up 7% occ. Within GES, Geosystems revenues grew 8% occ, with strong demand across all industries but hampered by component supply chain issues (see below). Safety & Infrastructure revenue was up 1% occ, driven by growth in infrastructure but with the Q2 growth rate pushed down because of an unusually strong quarter a year ago in defense. Autonomy & Positioning grew +6%, driven by growth in agriculture and a recovery in the maritime business.

By geo, revenue from EMEA was up 4% occ, with Western Europe (up 7%) partly offsetting the effects of the war in Ukraine and the impact of sanctions and freezing operations in Russia. Revenue from the Americas was up 10% occ, with North America up 7% (mostly in the US; Canada suffered from delays in energy programs) and 35% revenue growth in South America. Revenue from Asia was up 5% occ, with China up 1% occ because of slowdowns in infrastructure buildout. CEO Ola Rollén said that his team in China is exceptional and is able to land orders even when cities are closed. Regarding construction in China, the company decided to focus production resources on regions outside China, but as China reopens, it plans to recalibrate.

I report mostly on the software parts of Hexagon’s many diverse businesses but do need to point out that Hexagon reported an impact on revenue growth of negative 6% caused by shortages of critical electronic components. The company reported that it is starting to see improvements in the availability of some components and expects a return to more normal supply chain activity by year-end.

Simulation and design software wasn’t specifically called out –though Mr. Rollén did highlight wins in Q2 for the design of floating offshore platforms– but check out this slide about the company’s new Nexus platform. That looks a lot like MSC Software’s Apex product on the right …..

(Nexus was announced at the HXGN Live event in June. Mr. Rollén said it wiil stitch together the Manufacturing Intelligence offerings –so CAD, CAM, CAE, quality control, and other tools– into a communication platform for the manufacturing industry. Using Nexus is likely to be free, but users will have to own/subscribe to the software they use on the platform. The commercial model sounds a bit TBD at this point.)

Finally. here’s something we don’t often hear: In answer to an investor’s question about company structure, Mr. Rollén said there were about “100 million worth of business” that he would consider selling, split equally between IES and GES. He didn’t give any more details, but get that checkbook out and make an offer!

My take? As I said, Hexagon doesn’t provide guidance. But it does offer general, long-term objectives: 8% to 12% revenue growth per year between 2022 and 2026, of which 5% to 7% are organic. Had Hexagon been able to supply the hardware products its customers wanted, growth would have been even higher than what was reported. Uncertainties in the bigger world aside, I’d say things are going to plan.