Hexagon AB (publ)

Thank you for joining us today. Let's start from slide four to review some of the highlights from this Q1 2023. We had a good solid quarter, posting net sales of 1 billion 287 million euros. That represents an 11% reported growth on prior year, with strong organic growth of 8 percentage points, two from structure and negligible FX in the quarter. We were pleased to see a good uptake in terms of gross margin up to 66.5% with the all-time high in the quarter, 1.4 percentage points above Q1 2022. I would say primarily driven by volume and pricing, but particularly a richer software mix and new product releases that came in of higher gross margin than previous generations. We have posted adjusted operating earnings of 371 million euros, an 11% uptick on prior year. Adjusted operating margin was 28.9% at this point, pretty much on par with Q1 2022 and yet negatively affected by effects. I would say overall the business has leveraged pretty well on the additional volume. If we go on slide five and we start analyzing more detail in that Organic growth, looking at the two reporting segments, the industrial enterprise solutions segment that posted 11% organic growth, driven by asset life cycle, 16 percentage points, I would say, across the board, good SaaS progress, perpetual deals, close at a high value in the quarter, good diversification of the business, and strong performance for the enterprise asset management portfolio. Manufacturing intelligence came in at 10 percentage points of organic growth. Coming from most product lines, I would say e-mobility and all that area of investment has helped a lot. Commercial aerospace and we are taking capital investment to drive commercial aircraft production volumes up big and are the noticeable driver in the business. The geospatial enterprise solution reporting segment grew up five percentage points, very solid performance from geosystems, all in portfolio for buildings and construction and infrastructure positive across product line. Four percentage points of growth in autonomy and positioning with good performance, I would say, in defense and in agriculture, safety infrastructure and government decline 11 percentage points. Not surprised. This is something that we were expecting in the quarter. I would say 8 percentage points of this decline came from Winding down, highly volatile, very low margin service contracts in defense in the United States. Besides that, we also had a one-off software deal fully recognized in Q1 2022 in the telecommunications space that didn't reoccur in this quarter. In terms of regional breakdown for the revenue, 14 percentage points of growth. in Asia with China strong at 10% and a good momentum going further. Europe came in at 9 percentage points of growth. North America grew 1% but held back by those two impacts in SIG that we just mentioned. Going on to slide number six, cash flow, operating cash flow amounted to $117 million. in the quarter, primarily affected by a one-time tax payment with a timing different from prior year. Working capital came in at 7.9 percentage points of sales. Again, in an attempt to fund this incremental growth and somewhat also driven by an uptick in inventory in order to have safety stocks and protect from the electronic component shortages that would take that impact. We've got less to do now with our P&L, but the situation from a top line delivery has more or less stabilized. We still have some of those impacts from an inventory perspective. Cash conversion improved year-on-year at 66%. An improved picture, although still reflecting weak seasonality in Q1, but the annual guidance of 80% to 90% is reconfirmed on a full-year basis. If we move now to slide number eight, then Matthew will take us through the geospatial enterprise solution segment. Thank you, Paolo. Good morning, everybody. The GFO, as Paolo said, organic growth of 5%, starting with geosystems, 9% organic growth. We saw demand pretty much strong in every region, particularly Asia and the Middle East. We also saw a stabilization in the Chinese market after a week, second half of last year. And by product, we saw strongest demand in our mining business, surveying solutions, and also a good uptake from the new BLK. In SIG, at minus 11% organic growth. Within that, the public safety business grew slightly. As Paolo mentioned, we took the decision to exit a number of low-margin services contracts That was 8% of the 11% decline, with the bridge item being the last perpetual contract we had last year in the infrastructure business. Autonomy and positioning was 4% organic growth, driven by strong demand for their solutions in aerospace and defense markets. In terms of the profitability, the operating margin rose from 30.1% last year to 30.3%, positively impacted by product mix, both within the divisions and across the divisions, which offset the negative impact on effects. If we go to slide nine, just some highlights of what's been happening in the divisions during the quarter. So firstly, with Geosystems, they launched a product called Reveal, an AI-driven solution for heavy construction. Here you can use a laser scanner or drone to capture a point cloud at a construction site, and that's what you see on the right. Then use AI to automatically identify objects, so it could be vehicles, vegetation, stockpiles, and so forth. You can then remove them to have a much clearer picture of the underlying work going on. If we go to site 10, you can see Immersal launched a new smart city visual positioning system. So here you can combine Hexagon's digital reality platform, HXDR, and Immersal spatial anchoring to allow you to connect the real world to the digital world. So you can build a 3D map of a city and use computer vision to derive very accurate positioning within that model. And that can be used to drive augmented reality applications, as you can see on the right. Slide 11, Hexagon during the quarter acquired a business called ProjectMate. This is a SaaS project management software platform used by project owners. So you can use it to track progress on job sites, monitor delays, rework and changes and so forth. Project mates will be integrated with other tools in the SmartBuild suite and can take progress in monitoring information from Oxford Canvas, for example. If you look at slide 12, great to get an innovation award at CES for the Leica 3LK360 scanner. This is in the virtual and augmented reality category. So the new BRK-350 launched last year. It's smaller and lighter than the original version, which was launched in 2016. And as a reminder, it can scan four times as quickly, which obviously helps customer workflows and is already contributing to the organic growth that we see these years. Over to SIG on slide 13, just some selected customer wins, highlighting the continued good momentum for Encore. So first the Alpharetta, the Department of Public Safety, they wanted a fast solution. They chose the Encore Dispatch, Analytics and Records Management product to meet that demand. BMW also selected Encore to manage their security operations across seven different European manufacturing facilities. A good example of how this technology is used outside of the core police, fire and ambulance market. And then finally on GES, slide 14, a nice example of how our technology is applied to environmental applications. Saudi Arabia's National Center for Vegetation, Cover, and Combating Desertification selected our geospatial software to support their initiatives, including a plan to plant September million trees by 2030. They will use our software to help monitor this. Great. So looking at the industrial enterprise solution portfolio from slide 15, I've discussed both MI and ALI experience good growth across regions. MI is primarily driven by growth in general manufacturing in the software portfolio, in the CAM portfolio. We have, of course, integrated on top of the 10% organic growth, BPQ, as of April of last year. I would say in terms of demand for the first devices, strong uptake not only in China, but I would say also in Central Europe, where we see a lot of demand related to R&D projects and productization of new tools and methods related to e-mobility. In the asset lifecycle intelligence portfolio, 16% organic growth was great to see both in the core and in the enterprise asset management portfolio. Of course, EAM is more and more tightly connected with the rest of the business. Synergies are starting to flow through in between core ALI and EAM. And we've had good progress here, both in terms of driving recurring revenue growth and closing transformational perpetual deals. If we look at a couple of these sort of marquee or significant wins in slide 16, two projects related to the enterprise asset management portfolio. At the top, a major U.S.-based technology corporation has selected Hexagon's EAM to manage its global data center facility assets. The goal really is to maximize asset performance, increase reliability, support this hyper-growth phase as they build new data centers and retrofit existing ones. This is a landmark win for BAM. The second from Transdev Australasia. This is an operator of buses and ferries, light rail and rail services in Australia and in New Zealand. A large company managing thousands of assets, delivering more than 100 million journeys per year, so a lot of complexity and a lot of need to manage maintenance routines and keep uptime going. What EAM helps them do is really to centralize all of their systems, create improved visibility and improve overall the asset lifecycle management. I think these two wins underline how horizontal that platform is, certainly best in class, and we're putting investment in to make sure that we are relevant in all of these verticals. If we move to slide 17, two important wins in the core of the offering of ALI. The first one with BASF, of course, the largest chemical producer in the world. BASF was a long-term customer for ALI, and then progressively BASF is moving on to the SaaS offering of ALI. I would say it's a testament to upsell capabilities and the relationship that has been built over time. The second example is from Georgia Pacific. Georgia Pacific is one of the world's largest manufacturers, distributors of tissue, hard paper, packaging, building products. Of course, it's part of the Koch Industries Group. GP has selected Hexagon as a strategic partner when it comes to OT cybersecurity. Our cyber solutions will provide inventory and vulnerability management capabilities, enable comprehensive OT asset inventory. Moving on to manufacturing intelligence in slide 18, a couple of examples of new accounts that have been opened through the ETQ quality management software platform. Their offering is called Reliance, and it's a true multi-tenant offering with all the applications signed for high complexity OEM type accounts. In this case, we've closed significant business with Sealed Air, which is a global food safety and product protection solution provider. Large company, more than 16,000 employees. EPQ Reliance is their global quality management system, replacing a lot of homegrown processes. It's going to get rolled out across the 100 manufacturing plants over time. Second example is from Belgium, Solvay, a very well-known leader in material, chemical solutions to solve critical industrial, societal, environmental challenges. Large company active in multiple countries, more than 20,000 employees. Again, a lot of innovation and critical solutions. They are deploying ETQ, so there is a long-term customer of MI. It's being introduced by the CAE portfolio from R&D onto quality, and we are deploying Reliant across their facilities. Just to conclude on MI, we've announced the launch of our digital manufacturing platform already a couple of months ago, now commercially available from Q1. Nexus has been co-developed with our long-term partner, Microsoft, using their Microsoft Teams Fluid Framework. A lot of focus on making our technologies increasingly available through Nexus, more easily consumable by customers, a lot of focus on helping customers collaborate across silos and across applications onto this next generation platform. We also announced in the quarter a couple of partnership amongst others with Altium EDA, a fast growth sort of designer of electronic software design tools. We're going to connect our platform and theirs to make sure that we can go and cross-sell customers and help them solve multi-physics type problems. But we look forward to seeing Nexus growing commercially over the next quarters. Slide 20 is an overview of the organic growth by geographic region and by industry. So as you can see from the growth rate there, we had good growth in all regions, with the exception of the U.S. The U.S. is explained in the down arrow by the decision select of those contracts in the defense sector in SIG. Every market in North America has good momentum. China, 10% organic growth. and we feel optimistic about that for the second half of the year. Some softness or down arrows in infrastructure and construction markets. We've seen a little bit of a slowdown there with the interior systems, but that's being offset by very good growth in every region in surveying business and also reality capture centers. I think the rest of those you can process yourselves. With you, Dr. Atipo. Great, and just in conclusion, slide 23 and then the first solid quarter, solid start of the year and continuation with good momentum. Great opportunity for all of us also to catch up with our customers and find new ways of looking at helping them deliver great quality products across Industries will be at Exagon Live, our user conference in Vegas from the 12th to the 15th of June and we would love to see of course also as many of you on the line, investors, partners, stakeholders and customers are absolutely invited to join us in Vegas. Thank you. With that operator, I think we're ready to take questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. We will compile the Q&A roll start. This will take a few moments. Now we're going to take our first question. And it comes from the line of Joachim Gunnell from DNB. Your line is open. Please ask your question.

Thank you, and good morning. So two questions from my side, starting off with ALI. Can you highlight the underlying growth rates here of the perpetual-based licenses as well as the source-based revenues in Q1, and what is driving that? And based on the growth rates of the perpetual business, is it fair to assume a slowdown over the coming quarters?