Hexagon Q4’24 flash comment: Profitability and cash flow slightly above expectations

Hexagon released its Q4 earnings report today, which was slightly better than we or the consensus expected. Growth was low, as we expected, and there still seems to be no clear market recovery in sight. Profitability and cash flow were the bright spots in the report, with adjusted EBIT beating our estimate by 3%. We don't expect a significant share price reaction to the Q4 report given the recent share price rally and the company's soft market commentary.

Revenue slightly above consensus, organic growth in line with our estimates

Hexagon's Q4 revenue landed 1% above our estimates and almost 3% above consensus. Organic growth was 1%, in line with our estimate. Recurring revenue continued to grow at a good pace of 7% year-on-year, driven by Software, which was in line with the previous quarter (Q3). As expected, organic growth was negative in Manufacturing Intelligence and Geosystems, which are partially dependent on industrial investment and construction activity, respectively. Asset Lifetime Intelligence grew strongly (10%), with SaaS revenue up as much as 30%. Autonomous Solutions growth (-2%) was well below our expectations due to strong comparatives related to a large single project in Q4'23. Safety, Infrastructure and Geospatial grew 11%, well above our estimate of 4%, driven by strong growth in the public safety segment.

Division specific organic growth year-on-year

Source: Hexagon and Inderes estimates

Profitability and cash flow were slightly better than expected

Adjusted EBIT came in at 450 MEUR, some 3% above our estimate and 5% above consensus. Hexagon improved its adjusted EBIT margin to a record high of 31.1% (up 0.6pp y/y). The gross margin was 66.7%, up 0.2pp year-on-year. Adjusted EBIT was supported by favorable FX movements, which we calculate had a 0.7pp impact on the adjusted EBIT margin (we expected FX impact to be close to zero). Gross margin was supported by the divestment of the non-core hardware business in early 2024 and continued software revenue growth. Q4 cash conversion was high at 116% (Q4'23: 103%). Net debt at the end of 2024 was 3,231 MEUR compared to our estimate of 3,401 MEUR.

No major changes to market outlook

Hexagon does not provide numerical guidance. However, it stated in the Q4 report that it expects the market environment to remain unchanged in Q1 2025, which we believe could imply continued low organic growth levels. Our most recent organic growth estimate was 4% for Q1 and 6% for FY2025. The company's outlook commentary in the Q4 report seems to be roughly in line with our previous expectations. The company also said that the investigation into the proposed separation of ALI and related businesses is ongoing and the board intends to provide an update on this during Q1.