Hexagon AB (publ)

Good morning and thank you for standing by. Welcome to the Hexagon Fourth Quarter Earnings Report conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. I would like also to advise you that today's call is being recorded. I would now like to hand the conference over to our first speaker today, Anders Svensson. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Hexagon's fourth quarter 2025 conference call. First, I would like to direct you to the standard cautionary statement, and then we are turning to the next slide with the agenda. We will start with taking you through the Hexagon Group performance in the fourth quarter, and then dive into the Hexagon core business areas performance in the same quarter. I will then hand you over to Mattias Stenberg, who is the incoming CEO of our potential spin-off company, Octave. And he will take you through the performance of Octave in the quarter. Mattias will then hand over to Nova Tanke, our interim CFO, who will cover the financials for Hexagon Group in more details. And we will then, of course, have time to take any questions that you may have. So moving into the next slide. And we can jump directly into the highlights of the quarter. So in the fourth quarter of 2025, we returned to good financial performance. We delivered a 3% organic growth while still taking decisions that improved the long-term performance of both Hexagon and Octave. The operating margin of 29.4% was impacted by significant currency headwinds of 150 basis points. We also began implementation of the restructuring program that we launched during the third quarter to further improve the underlying profitability of the group. The store delivery of the quarter was the strong cash conversion at 121%. Alongside this, we delivered operationally, too. If we look at M&As first, we announced that we will acquire inertial sense within the autonomous solutions business area to strengthen the breadth of our successful positioning portfolio. We acquired IconPro. expanding the range of proactive maintenance services that we provide to our metrology customers. And the sale of our business design engineering was sold to Cadence, as you know, and the closing of this is progressing on track for a closing during the first quarter. The new operating model, which we began to implement across Techstone core businesses during the third quarter, is progressing well. And this model then decentralizes Hexagon into 17 P&Ls within our three externally reported business areas, creating clear accountability and transparency, and decisions are taken closer to customers, increasing our customer responsiveness, but also speed in decision-making and execution. Our humanoid robot, Aeon, continues to make great progress in its customer pilots, and we announced an important partnership with Microsoft aimed at advancing humanoid robotics further. We also announced a new CFO for Hexagon Core, Enrique Patrixson, who I will talk more about in the coming slide. And finally, we continued to progress the potential separation of Octave, which remains on track to be completed during the first half of 2026. Following this set of results, The board will propose a dividend of 14 euro cents per share at the annual general meeting on April 24th. So, we have a busy quarter behind us, and we move into the next slide. And I'm pleased to announce that we have appointed a new CFO, Enrique Patricksson, and he will join us then later in July of 2026, but most likely already early in the second quarter. He's a veteran CFO with many years of corporate finance and strategic experience. At his most recent role at the European private equity firm, Triton, he has been responsible for advising a number of their investment companies on financial matters and best practices. And his experience has been within companies ranging from 300 million euros up to 5 billion euros in revenues in all phases of development. Before that, he was at Viaplay, where he played a central role in the turnaround of the business that was a critical part of Viaplay's history. Previously, he also spent time with Electrolux and Assa Abloy, where he held strategic finance roles across Europe and Asia. So I'm very excited to welcome Enrique to the team, and we look forward to the next phase that he can contribute also with profitable growth going forward. And Norbert Hanke will remain our interim CFO until Enrique joins. And after that, Norbert will become an executive vice president at the group level. So I would again like to thank Norbert for stepping into this role and supporting us extremely well while we found a strong permanent candidate. Turning now to our performance in the quarter. So I was pleased to see that we had good organic growth while allowing some of our businesses to make operational and strategic decisions that will offset growth in the short term, but will ultimately set them up for success in the long term. In Octave, Mattias and the team continued to focus on SaaS deals, generating another quarter of strong double-digit SaaS growth. And in Geosystems, we chose not to restock channels in the market, which has been weak for some time, such as in China. And this had a total top-line effect of 10 million in the quarter negative for Geosystems. Eight out of those 10 millions were related to destocking in China. Despite these items, the group grew 3% in the quarter, maintaining the momentum that we already saw in the third quarter. Recovering revenues grew 3%, fully in line with the organic growth, and new products contributed with 2%. And we expect that the new product will contribute more going forward as we are ramping up the products that we released during 2025. Turning now into the development by region and industry during the quarter. Here you get a snapshot of the development. The overall markets remain broadly stable in the fourth quarter. Some highlights, first by geography. America is a standard region. grew 11% for the group, with positive performance across all of our business areas. EMEA recorded a 4% organic growth, driven by autonomous solutions, and supported by stable performance in geosystems and Octave, and this was then partially offset by continued weakness in manufacturing intelligence in EMEA. China declined with 5%. Strength was shown within manufacturing intelligence, But it was offset by continued weakness in year systems. And here, I want to, again, remind us that we had 8 million related to destocking in the sales channel within China. And the rest of Asia also declined, mainly due to tough comparables within autonomous solutions. If we look by industry, so there was strength within construction segment in America. but it remained weak for us overall, primarily due to China. General manufacturing was strong in the U.S. and in China, but remained muted in EMEA. Aerospace and defense, as you can see, was a standout performer in the quarter, recording strong growth across all our key markets here in America and EMEA. Mining also, globally, very strong in the fourth quarter across basically all important market for us. Automotive remained weak in the key EMEA markets, and as expected, unfortunately, also turned negative in China due to overcapacity in the markets. Electronics was very strong in China, but weaker elsewhere. But that is, China here is the important market for us within electronics. The other markets are quite small and insignificant in comparison. And agriculture remained weak. with the market still looking weak globally since the COVID, past COVID supply to market, which was an oversupply to market. This market has been quite muted in the last periods. Turning now into profitability, we start with the gross margin, which was a record strong gross margin in the quarter, 67.5%, benefiting from a strong product mix. And I think we can also show that we manage pricing and cost very well. And also then we got a contribution, which was quite small, but still there, of new products going to market with better margins. On a rolling 12-month basis, we were in line with the prior year. So turning now to operative earnings. So during the first quarter, we delivered an operating margin of 29.4%. with significant negative currency impact of 150 basis points, which is under sort of offsetting the underlying strong performance that we had in the quarter. And as we recently launched several new products that are now in ramp-up phase, we also have a negative impact from reduced gap between capitalization and amortization versus the previous year. And Norbert will talk more about this in his slides later. As you know, we also launched the restructuring program in the third quarter to remedy the underlying margin performance. And we are targeting here savings of a run rate of 110 million at the end of 2026. And as a reminder, we said 74 million of those would be within hexagon core, and 36 would be related to octet. And Norbert will also cover the progress of this program at the later stage here. So in the first quarter, we will continue to see benefits of the restructuring program, but at current exchange rates, we expect significant headwind from currency, alongside with the usual seasonality that we have in the first quarter, such as, for example, merit increases across the organization from the 1st of January. I'll now turn to the performance by business area. So I'm going to start with the Hexagon Core, and this is, as you know, excluding then Octave. And Hexagon Core grew 4% in the fourth quarter, with operating margins of 28.4%, with significant negative impact from FX year-on-year. There was a slight moderation in the organic growth from the 5% we had during the third quarter. So, again, here, I want to highlight the 10 million of destocking within year systems. If you would add that back, we actually hit the 5% mark just as we did in the third quarter. So I'm very pleased with the underlying performance that we have made within Hexagon Core. So turning now to manufacturing intelligence. So we reported revenues of 491 million euros, which represents then a 1% organic growth on 2024. The market dynamics were broadly unchanged from the third quarter. with strength in China that grew 5%. America was also good. While, as I stated previously, EMEA, the market positions continue to be challenged, but if you look quarter on quarter versus the third quarter, it was stable, so it was not worsening from the third quarter. By industry, demand was particularly good in electronics and aerospace and defense. Automotive remained challenged. And the organic growth moderated from Q3, as we saw delays in customer decision-making, especially early on in the quarter, pushing work into 2026. But if we look at orders here instead, so we have strong order intake growth of 7% versus the previous year. And as a result of this, we exit the quarter with a strong order book to be delivered in 2026. The division or the VA reported a EVs of 139.3 million and an operating margin of 28.4%, impacted by currency effects also here. I now turn to geosystems. And here we reported revenues of 363 million during the quarter, and that represents a minus one in terms of organic growth compared to the previous year. As I mentioned earlier, the primary reason for geosystems then to turn into negative growth was the proactive decision that management took to destock the channels where we have seen softer demand for some time, like in China, where our exposure to heavy infrastructure has, as you know, faced significant headwind and challenges in that marketplace. So excluding this destocking, if you look at the system's underlying growth, it was actually plus 2% year-on-year. This destocking headwind will persist on a similar level also during the first quarter of 2026 as we are right-sizing these delivery channels. So after that, we will have a normalized business going forward. So from Q2 and onwards, you will not see effects of destocking further. Markets remain similar to the third quarter with good demand in the Americas for construction software, surveying tools. We also saw... stability in EMEA with a modest growth, but the challenging environment in China heavy infrastructure remained significant. So EBIT declined to 103 million with an operating margin of 28.4%, reflecting the combined effects of low volumes in some of the product segments and also weaker product mix and, of course, negative currency impacts. Finally, then, Turning to the outstanding performer of the quarter, Autonomous Solutions. And within Autonomous Solutions, we delivered revenues of 196.4 million during the quarter, representing a 23% organic growth compared to the prior year. There was a record performance within both aerospace and defense and within mining. This was slightly then offset by the share challenging global market situation within agriculture, as I mentioned earlier. Performance was focused on Americas, but EMEA also grew well. Asia declined due to very tough comparables, and this is also in reference to the MinRES project that we're executing in Australia. There were some timing issues, et cetera. So if you look at the underlying performance, it was actually good in Asia as well. EBIT came in at 67.7 million, representing an increased EBIT margin to 34.5%, driven by strong volumes and a positive product mix, but also here offset by currency. I will now hand you over to Mattias, who will cover the Octave performance. So, Mattias, please go ahead.

Thank you very much, Anders, and good morning, everyone. Before we dive into the quarterly performance, I want to start by reminding and reinforcing what Octave is and the role we play for our customers. We are the market-leading provider of enterprise software that helps customers design, build, operate, and protect their mission-critical assets. We serve industries where failure has real consequences, whether that is human safety, operational downtime, or material financial impact. Across our portfolio, the common thread is accountability. Accountability for outcomes across the full asset lifecycle. As technology capabilities expand, the requirements for uptime, safety, and compliance only become more rigorous. And Octave truly provides the platform and the technology to manage that complexity at scale. If we then turn to the next slide. Our market position, as you can see, is very strong, and our leadership continues to be validated by leading independent research firms, including names like Gartner and IDC, but also several others. For more than 15 years, we have consistently been recognized across multiple solutions and verticals. In this quarter, however, specifically, we were placed as a leader in Gartner's latest magic quadrant, for QMS software, and as a leader in IDC market scapes for both asset performance management as well as for EAM. So I think these recognitions underscore our sustained innovation and relevance across the markets we serve. We move to the next slide, digging into the quarter results. As you can see, we delivered 2% organic growth. with our recurring revenue slightly outpacing that at 3%. Our recurring base represents roughly 70% of our total revenue, and we continue to make good progress shifting our mix towards subscription-based models, which, as you can see, is reflected in our double-digit SAS growth, as well as by another quarter of record new bookings, just like we had in the previous quarter. Our EBIT margin landed at 32% compared to 35% in the prior year period. This profitability is primarily a reflection rate of a higher mix of perpetual revenue in the prior year period, as well as FX headwinds. It also reflects deliberate investment in innovation, product development, and the infrastructure required for us to operate as a standalone public company. We expect to gradually offset these investments through the cost savings program we earlier announced in Q3 2025. So, all in all, we are confident we are positioning Octave for stronger, durable, profitable growth. Turn to that next slide, please. Here you can see our business broken down by our four core pillars. As you can see, design is our largest business from the pie chart there. In this pillar, we saw solid platform growth, which, however, was offset by a lower contribution from our monthly subscription licenses, which I will describe a bit more on a coming slide. Build, you can see, had a very good quarter, strong SaaS growth in construction software, as well as in project performance management software. Likewise, Operate saw strong recurring growth. especially in our solutions around QMS, APM, and EAM. In the protect pillar, the growth we saw in recurring revenue was offset by declines in perpetual licenses, mainly due to record activity in the prior year corresponding period. Next slide, please. So, yes, like I talked about, if we try to explain a bit what's going on in the recurring revenue, there are two things you need to understand. If we look at our monthly subscription licenses here, it represents roughly 50% of total revenue and is driven by project activity for certain large customers within our design pillar. While this revenue grows over time, it can fluctuate in the short term with macro conditions and customer project timing. So, after a strong end to 2024, as you can see from the graph there, we saw a reduction in monthly license volumes in kind of early 2025, going into Q2, as you can see there, as broader market uncertainty influenced customer behavior. These levels have, however, been sequentially improving in the second half of the year, and we expect year-over-year comparisons to gradually get easier throughout 2026. So, on the right side of this slide, you can see that excluding these project-driven monthly licenses, our underlying recurring revenue is growing in the high single digits, reflecting the solid underlying growth we see in our broader portfolio. Next slide, please. So, looking at some customer wins, we, of course, had many, many customer wins in the quarter. I selected these four because I think it's a good reflection of showing how many different types of critical industry sectors we serve. It's really a good representation of the breadth of our platform and the diversity of our customer base. I think it also shows the level of trust, performance, and scale that we are able to provide across large, complex organizations, such as, in this quarter, a very large, fast-growing e-commerce company in Asia, one of the global leaders in the energy sector, one of the largest pharmaceutical distributors in the world, and the largest US police department. Next slide, please. Looking ahead, we are really focused on execution. We recently completed our first global sales kickoff as one octave, reflecting our next days as a standalone company. We are truly operating with a clear set of priorities, and we expect each of these to support stronger, durable growth over time. First, we continue our transition, like I talked about, to subscription-based pricing models. supporting more predictable high visibility revenue streams. Second, we are deepening our customer engagement by driving cross-sell across the design, build, operate, and protect pillars, supported by a shift in R&D toward a unified architecture and outcome-focused AI capabilities. Finally, we are also scaling our partner ecosystem and strengthening our go-to-market execution while at the same time finalizing the governance and operating infrastructure that is required for us to be a standalone public company. Turn to the next slide, please. So if we look at the process and the update on the spin, it is moving forward as planned. The final spin-off is targeted for the second quarter this year, pending the effectiveness of our public listing steps in the U.S. and Sweden. and final approval, of course, from the shareholders and the board of directors. We expect our draft registration statement, the so-called Form 10, to be filed publicly in February. We're also very excited that we're going to hold our first Octave Investor Day. It will be in New York on March 26th. We look forward there to share more about the strategic priorities I mentioned as well as our business model and, of course, our growth opportunities. You can expect invitations and details here in the next couple of weeks. I look forward very much to hopefully seeing many of you there. So, with that, thank you very much, and I'll hand it over to you, Norbert.