Hexagon AB (publ) ($HEXAB)

Good day, and thank you for standing by. Welcome to the Hexagon presentation on the acquisition of Waygate Technologies Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead.

Thank you very much, operator. So we are calling for this presentation to announce that we have agreed to acquire Waygate Technologies from Baker Hughes for a USD 1.45 billion cost. So Waygate is a global NDT business specialized in X-ray, Remote Visual Inspection, Ultrasonic, et cetera, with an annual revenue of approximately USD 630 million and 1,500 employees. And the [ target ] closing day for this transaction is the second half of 2026. So if we then go to the first slide, so what are we buying? So we are buying the leading NDT platform, nondestructive testing platform. Waygate is #1 in remote visual inspection and #2 in industrial computer tomography. Both are in growing and highly regulated markets. So the entry barrier is quite high. There's 130-plus years of heritage, a lot of patented IP and deeply embedded customer relationships within aerospace, defense and advanced manufacturing. So why are we buying this company? Well, it's a natural next step for Hexagon. It completes the measurement chain from the surface where we have been always strong with our metrology solutions to also now the inside of the components of products. So it's an adjacency that we have for quite some time, discussed with customers, would be interesting for them to get a full solution, so sort of our current metrology solutions, combined with computed tomography and combined then with the analysis tool and visual inspection that we are selling to these types of companies today called Volume Graphics. So we will then be an integrated player across the offering. It also diversifies our revenue into the MRO markets, which are more recurring, utilization-driven demand and less sort of connected to CapEx cycles. And this is primarily then the remote visual inspection part of the acquisition. So how do we intend to create value? Well, already the RVI, or Remote Visual Inspection, is a very profitable business. And so here, we are focusing on delivering strong growth. utilizing also our knowledge and our relationships with customers within the aerospace business primarily. And here, we will also see some synergies. The focus is then on the Radiography to improve the profitability level. And with our China manufacturing localization experience, we believe that we can generate quite good gross margin expansions within Radiography. And we can also then cross-sell with, as I mentioned previously, our metrology solutions. And we believe that there will be quite a good base for delivering revenue synergies across both businesses, actually also our existing business. When we talk about the stability assets, which are the other two, Imaging Solutions and Ultrasonic Testing, these are still very good assets. And we will look into these assets to see, do we have a performance issue? Is it a market position issue? Or is it a strategic fit issue? And then we will decide if we will do turnarounds, if we will do further bolt-on acquisitions to become the #1 or #2 in the market or if there is required to do some other strategic reviews. And I believe that this is a really good value-creation opportunity for the shareholders of Hexagon. And this is something that I have worked a lot with in my previous capacities. So I see a lot of potential upside to this acquisition being integrated with the Hexagon MI businesses. Going into more details, I will leave over to Andreas Renulf, who is the President for the business area MI, to continue the presentation. So Andreas, please go ahead.

Thank you very much, Anders. So if we go to the next slide, to give you an overview first, here, we are talking about the transaction value of USD 1.45 billion, and we expect to close in late second half of the year. The revenue for Waygate in 2025 was $630 million and the EBIT margin, EBIT1 margins, at 10%. And as you know, that is not the level which we are playing today here in MI and in Hexagon. And this is where we see an opportunity for strong value creation, which Anders mentioned here. The transaction scope is that this is a carve-out from Baker Hughes. And to give you a little bit of history, these were 4 different assets that GE acquired about 20 years ago to create GE inspection services. And this is what then became part of Baker Hughes, and this is what we are now acquiring from Baker Hughes. The customer persona for these solutions are typically ahead of quality, which is the same persona as we have for our metrology business in production and also for MRO departments, maintenance, repair and operations. Revenue by geography, you can see that it's very evenly split globally with 30% in North America, 28% in Europe and 34% in Asia, 8% rest of the world. And from an industry perspective, it's very tilted towards aerospace and defense, 35%. And then you see oil and gas, 15%, which is primarily from the Imaging part of the business and then into a number of different businesses here, including electronics and batteries, where there's a need also for CT and so on. But strong on aerospace here and defense with 35%. Go to the next slide. So as Anders mentioned, we are buying a world-class NDT portfolio, and it is really a portfolio of 4 different businesses here. We start with the first one, which is the remote visual inspection. This has a revenue in '25 million of $148 million and very good margins. So here, we have a mandate which is growth. This is the market-leading video borescopes for aircraft jet engine blade inspection without having to disassemble the jet engine. And I will show you a slide on the stickiness of this application, this strong patent and IP, strong aftermarket services and a very, very deep relationship with the customers here. And this is a safety critical applications with significant barriers to entry. On the Radiography side, you have leading with revenue of $183 million in 2025. And this is where you have the natural extension from what we do today in [ metrology ] or in the production shop floor to go into also the internal part of an object, not only measuring the surface. So it's the 2D X-ray, which is primarily for the electronics industry, and then you get into the 3D computer tomography, CT systems. And it's both for internal inspection of porosities, et cetera, but it's also a dimensional metrology or inside of an object. Waygate has proprietary in-house X-ray tube manufacturing, which is a key competitive advantage. And this integrates directly with our investment from or acquisition from 2018 in a company called [ Boingo Graphics ], which is the effect of software standard for CT analysis today. And here, we see a lot of different synergies, and the mandate here is to increase the profitability of this part of the business. For the Imaging Solutions, so this is the Industrial X-ray, $207 million in revenue in '25. And also here, in remote vision inspection, Waygate is #1 for radiography and the CT1 or 2, also for Imaging Solutions, it's #1 or 2 in the market. This is the provide -- provision of high-quality industrial X-ray films, processing chemicals, equipment and scanners and so on. And it's also supported by software for image analysis. And this is very widely used for detailed inspection of well, castings and components. And you can think of a valid stepping inside of the pipeline, for instance, where we need to push the the film around the pipeline to be able to put X-ray through and get the picture of the integrity of this weld. Here, we have put the stability on, and that is primarily because this is more of a resell business than what we are used to in Hexagon. And that arrangement is done with Agfa. When we come to ultrasonic testing, we have actually not put up a number where we are from a market position, and that become -- that is because this is a split of two different parts of Ultrasonic. It had a revenue in '25 of $93 million. And one part of it is used for testing of sort of -- testing machine solutions, which goes into both production but also into the MRO market; and also handheld solutions, which is primarily for the MRO market here. And also here, we have put this as a mandate of stability. That is because we really need to look at the profitability for this part of the business. Go to the next slide. So how does this hang together with where we are today? Well, we are actually all the way to the left-hand side on the metrology side, which has a clear production focus. We are the leader in surface representation of any part in 3D, and we measure anything from a service perspective. The natural connection is with the radiography piece of Waygate. And as I said before, we acquired the company Volume Graphics some years ago. So we are already in this business. And with the CP part, you can actually do the metrology and the measurement inside of an objective set of just on the surface. And that is still very much a production focus primarily, and we get into the Ultrasonic part of the business where you can penetrate up to 30 centimeters or 300 millimeters into steel. And you can check the welds and corrosion and so on. And this is both for production, but then it starts to get over more towards the maintenance repair and operations part. And then you have the Imaging part, which is primarily for maintenance, repair and operations and remote visual inspection, which is more or less only for maintenance, repair and operations and very, very focused on these applications for aerospace. If we go to the next slide, I will show you the application for Remote Visual Inspection because you could think that this is just a video camera that is used to look at things which are difficult to reach. But this business is all around the application and doing that in a good way. What you see here on the left-hand side is the schematics of an airplane jet engine. And you have probably noticed when you get on a plane that there are those blades that you can see, and those are the fan blades in the front. So there are actually 1,500 blades in aerospace jet engine, and they are therefore to compress air. Inspection of those blades, which are absolutely crucial that happens on the tarmac when the motor is on the wing after around 2,000 flight hours or if there has been a bird strike or something like this. The MRO technician performs this inspection offer quite shortly after landing, So engines are hot, so you need some requirements to be able to handle that from a product perspective. And the probes are inserted into specific ports that are premade into the engines, and the engine slowly rotate to inspect every blade. So 1,500 blade, every one of the needs to be inspected. And if the effect is positive, you need to have an accurate defect characterization and measurements to make the decision to continue operation, do I continue operation or do I take the engine and then also the plane out of service for repairs, which is the $1 million decision for an airline to take. So there's a very high value for the customers here compared to the cost of this application. And it's all about automating this the prescribed, of course, in the maintenance hand books from the OEMs that produce this aerospace engines. To go into the next side, from an acquisition rationale, first of all, we complete the measurement chain going from the outside to the inside. And this is an area where we have, to be honest, struggled a little bit for the last couple of years because we have one large competitive size that has this combination already. And many customers who are buying the CT part, they are using the CT machine, both to do the measurement on the surface and on the inside as well. So for us, this is important, especially for aerospace, castings, automotive, battery and so on. When it comes to the software integration opportunity, our software Waygate gate for CT pairs directly in -- with -- so Waygate CT pairs directly into the modern graphic software that we are offering today. And we see large cross-sell opportunities here with metrology solutions as well. We also get an entry into new markets, and that's the maintenance repair and operations, so nondestructive technology is a very attractive growing marketplace. And here, we are then decoupling ourselves a little bit in MI from the CapEx cycle of the production shop floor. So this is an area that we have looked to see if we could get in there to the bridge of CP. And then this is the value creation opportunity that we see clear opportunity to significantly improve the Waygate margins here. Go to the next slide. So for the Remote Visual Inspection, we see there that with that, we can diversify in MI into the lucrative MRO market. So we have the full-scale testing capabilities for asset integrity with the remote vision inspection that's an anchor for us. And from there, we can start to make more add-on acquisitions in that area. Radiography, it's very much about profitability for us. We have a number of different synergies that we will work out, both obviously on the software side with graphics. We can cross-sell with metrology. And we have a very, very strong China organization where we can localize manufacturing as well. For Imaging Solutions and Ultrasonic Testing, we will evaluate these investments and look for opportunities to increase the market leadership. But we will also review the assets and their strategic fit with the core MI. Next slide. From a deal overview perspective, the acquisition price was $1.45 billion and definitive agreement is signed. Then we aim for closing in the second half. Obviously, this is subject to regular closing conditions, and this is a carve-out from Baker Hughes. So we will have some transition service arrangements pre-close. If we look at the numbers, the revenue for Remote Visual Inspection, $148 million; and Radiography, $183 million, that gives $331 million. And for that part of the business, the EBIT1 margin is 16%. So RVI is higher, and radiography is a little bit lower. But in total, they are 16%. For Imaging Solutions, NOK 207 million in revenue, ultrasonic testing, $93 million. That brings the total of Waygate to $631 million and the Waygate total EBIT margins are then at 10%. With that, I think we are ready to hand over to the operator for questions and answers for [ Anders ] and myself.

[Operator Instructions] Our first question for today comes from the line of, just one moment, Daniel Djurberg from Handelsbanken.

I have a question coming back to the key figures that you finished off with here. If you can help us a little bit to understand the growth patterns seen in '25 with regards to the four elements that you have here, Remote Visual Inspection, Radiography and Imaging Solutions and Ultrasonic Testing, just to -- and also, how to think on the outlook on the growth patterns?

So do you want me to start, Andreas?

Yes, please.

So the Remote Visual Inspection is a very highly regulated area, of course, with these inspections. So that is a quite quickly growing area. Radiography is also a good growth engine for the company. But primarily, we think here or we believe that it's the synergies that will create a fast-growing trajectory for us going forward. Given that we have similar customer base, we can now offer the full solution with our existing with our existing metrology solutions, combining those with the CT capabilities of Waygate and then having the analysis and visualization tool of Volume Graphics, which we already own. So that is what, we believe, will create a quite rapid growth going forward. So if you take those two together, they will grow at MI or slightly above MI rates going forward, is what we say externally. Of course, we have our own targets to make sure that we can grow this quite rapidly. When it comes to the Ultrasonic, it's, of course, an interesting business, but we are quite niche. So with this with this ownership, it doesn't create us a strong position throughout the Ultrasonic Testing area with customers. So as we mentioned, here is also where we will review strategic options. Could we then acquire something else so complement acquisition to make our position stronger within ultrasonic? Or do we need to make a turnaround for this business to come up to the right profitability levels and then grow it? Or should we do any other strategic reviews? When it comes to the imaging, this is not a fast-growing business. It's a business which is very stable in both upturn and downturns. It's primarily, like Andreas said, it's a supply chain business for us more than a manufacturing business for us. This will continue to be a good business going forward. key customers like oil and gas and these kind of critical installations, power generation, aerospace, et cetera; the customer base is very, very strong and very loyal to these solutions. But it's not a fast-growing business going forward, either, in my opinion. Andreas, please complement.

I think that gives a good overview. I would say that the U.K., ultrasonic as a market is growing quite nicely. And that is also taking some of the market growth from traditional films and imaging. But it's more about the starting position there that we are the reason why we put it into stability. And maybe just one comment on imaging is that this is a market which is slowly but surely transitioning from analog with films to digital to basically have a digital way to create these images instead of doing it on the analog films here. But in general, I would say that, that is where we are.

And the digital solution is also something that Waygate offers, right?

Correct.

May I ask you on the Imaging and Ultrasonic? Is it -- together, it seems to have 7% to 8% margin or something in '28 -- '25. Is the big difference between Imaging and Ultrasonic with regards to the margin? Or is it similar or perhaps you show that on some slide I missed?

No, we did not go out with those numbers. So we basically go out with the RBI being at around the 30 mark for EBITDA, and then you can easily calculate the radiography margin from that. And then the other two, we have at the package.

Okay. And may I also ask you on the China opportunity, you mentioned to cross-sell within MI? And will it be mainly within the Remote Visual Inspection or also Radiography that you will try to sell in China on a larger scale?

Yes. So maybe I can take that. The biggest opportunity we have with our China organization is really for the Radiography part. We are actually selling to our own local developments in China CT already today. We started that only a couple of months ago because it's such a good fit with the customers for metrology. And so the biggest impact is going to be on the Radiography business and on the CT business. For Remote Visual Inspection, there will be some opportunity, but that is more to the MRO market, where we're not so established today. So most of the benefits from localization to China will immediately come from regular

Perfect. And if I may, the last question for me would be on revenue...

Can you [indiscernible], we need to let someone...

Okay. Perfect. I'll get back in queue. Thank you. Bye.

Our next question for today comes from the line of Alice Jennings from Barclays.

My first question is just on -- so clearly, the acquisition expands Hexagon's current market position and what is definitely an adjacent industry. But I guess, what made you decide that now was the right time? Like why is this acquisition or something similar not been done in the past? Was there anything that kind of fundamentally changed to make the acquisition more attractive right now? And then my second question is just on the customer overlap. Is there any way that you can kind of quantify what -- how much customer overlap there is in terms of the share of MI customers for which these solutions might be relevant?

Yes. Thanks, Alice. So if I start with the first one, I think this is a space we have always been looking at in history also. We see lately more and more customers wanting to have a full solution, like -- Andreas also mentioned like [ Size ], for example, already has a full solution with similar metrology solutions like we have and then combining that with CT analysis. And more and more customers are also trying to make CT solutions complementary to also supply the outer dimensions of the components you are measuring. So this is, for us, both strategic but also a value-creation acquisition from that point of view. So -- and the timing exactly is, of course, when assets become available. There are not that many strong answers like this one. This is basically the strongest assets that has been for sale in years within this area. So it's also a bit combining with -- finding the seller and combining that with the market opportunity that we see arising within this area when we talk to our customers. And maybe you talk about the overlap, Andreas.

Yes. So First of all, the customer overlap is within the [ radiography ] part of the business. And it's hard to just give you a percentage just like that. But you can think of it of the primary customers, which are into battery manufacturing, automotive, within aerospace, into castings. Those are the typical ones. And from a Hexagon MI perspective, we have quite a lot of sales that goes into both aerospace and automotive. So it's quite a considerable overlap there, but I don't want to give you an exact percentage number.

This concludes today's question-and-answer session. I will now hand the call back to Anders Svensson for closing remarks.

So also, we are very excited about this announcement today. We believe that this is a great opportunity for us to create value going forward. Very interesting businesses, very complementary to us and to the customers. So we are looking forward to welcoming the Waygate team into the Hexagon Group. And there will, of course, be more opportunities to have questions on this. We have Q1 reporting next week. And the week after that, we have a Capital Markets Day in London. So we invite you with with further questions. And of course, our Investor Relations teams are always available for you to talk to as well. So with that, I think we close for today. Thank you, everyone, for attending, and have a good week.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.