Welcome to the HMS Networks audio cast with teleconference Q2 2021. Today, I'm pleased to present Staffan Dahlström, CEO. For the first part of this call, all participants will be on listen-only mode, and afterwards there'll be a question and answer session. Staffan, please begin. Thanks, Mark. Good morning, everybody. Welcome to this quarter two session by myself, Staffan Dahlström, and Joakim Nideborn, our CFO. The agenda for today is just a quick summary and introduction. I will continue with a short business update, and Joakim will then dive into the financial numbers, and we'll finish up with a Q&A. Let's take a look at the numbers. Many of you have seen the reports an hour ago, and we have a very good Q2. Record level on net sales, up 33%, fantastic order intake. We have a strong demand in the market, but there's also one component that is more of shape buffering from our customers, and Joakim will talk a little bit more about this because it's important to understand. Very good profit level, SEK 121 million for the quarter. Good EBIT margin, good cash flow, good EPS. We have a fantastic quarter. We're very happy with Q2. When we combine this good Q2 with a good previous Q1, we get a very good first six months of the year. We are approaching SEK 1 billion on the first half year here, SEK 929 on the net sales and a very good order intake. This also gives us a fantastic backlog for the remainder of the year and also some of it actually into 2022. Same thing here, we accumulate two good quarters, and this means that we have very good numbers. EBIT margin north of 25%, much higher than we have expected, actually. Good cash flow and good EPS. Let's move a little bit into the details. Before that, let me spend a couple of minutes just describing our business for you on the call who are quite new to our business. HMS, Hardware Meets Software. We do industrial connectivity, connecting devices. This is a combination of hardware and software, and we allow our customers to connect different machines to interchange information, or also the machines to different cloud systems or IT systems. Our four major brands that is divided into our business units, Anybus, Ewon, Intesis, and Ixxat have different connectivity and communication and information products. They're all sold through our common sales channel through our four different market units. We have two fairly recent acquisitions, German WEBfactory, software company, and last fall we acquired the Dutch Procentec company, and Procentec goes very well, and I'm sure Joakim will talk about this a little bit more. This is our business and our brands. If you look on where we do our business, we are talking about industrial ICT. ICT, information and communication technology. This is our business, and we do the industrial part of that. We're well established. We have more than seven million products connected in automation. We have more than 300,000 machines connected into our cloud system, so we can help our customers to do remote diagnostics and remote access to these machines. We are a technology company. One third of our employees is in R&D. Another one third is in sales and marketing. R&D and sales and marketing is, of course, our two major activities. We focus on new things such as 5G, IoT, wireless, and this kind of things. At the company size, we are slightly more than 700 employees around the world. We have operations with subsidiaries in 16 countries and partners in over 50 countries. We're headquartered here on the southwest coast of Sweden. Sunshine also outside, not only on our numbers. A fantastic summer day here. Sunny, 30 degrees outside. Let's take a look at how we go to market. We have two types of customers. We have users of automation systems. This is the smaller part, maybe 25% of our business. The system integrators, end users, and here we normally go to market through our partners and distributors. The larger portion is the makers of industrial equipment. Could be machine builders or device makers, and here we mainly go direct with our sales force to these customers. We've set a new strategy for the coming five years last fall. I think we presented this in December or maybe it was November, with 2025 targets in three different areas. We have environmental targets. We have staff and customers, growth and profitability. On the left side, the environment, we have bold goals here. We want to be net positive by 2025. We put a stake in the ground. This is important for us. It's also important for our customers. We want to be net positive on our own internal operations, of course. The major difference we can make is actually helping our customers. We help them with their sustainability and their environmental targets. We have very good target numbers for staff and customers. We measure Net Promoter Score. We have high scores there. We are approaching to our growth and profitability targets. 2025, we'll have revenue of SEK 5 billion, more than SEK 3.14 billion. We want to maintain an EBIT margin of 20%, and as you noted, we are much higher right now, and we keep a dividend policy of 30%-50%. These are our targets, and we work hard to fulfill all these three. We think with these three targets together, we become a very good company. Short business update. If you look at quarter two, we can see that we have growth everywhere. All our brands is growing with an order intake more than 50%, so we see a very exceptional strong market at the moment. Couple of drivers is the machine building and robot manufacturing. New record levels goes very well. We also see this on industrial PMIs, that is also very high. After a couple of weak years for us in automotive, we see also that investment in e-cars is helping our Ixxat business in Germany and U.S.. The combustion engine is now moved to an electrical drivetrain, there's a lot of pieces in the car that are still assembled and automated and things like this. Our customers in that market see a very good situation at the moment. We also find some new businesses in renewable energy, in wind, recently also more in battery manufacturing, where we see a lot of investments, they need more automation here as well. Second point here is that we need to keep in mind that there's also a boost effect in our orders. We expect this to be SEK 100 million in the Q2. We have component issues, both HMS Networks, it's a market problem in general, we see that some of our customers are placing more orders just to make sure they have secure their shipments too from us. We estimate that there's extra orders. Without this, we still see a very good market. We think this will continue for 2021. We see the good investment climate, but we have challenges in the component situations, and we believe that we'll see more problems in Q3. Some of these orders will be probably pushed out to Q3, all in all, we hope and expect that the end of the year, we should be more in balance. What is kicked out of Q3 will probably be delivered out in Q4. We made a new acquisition, July 1st, a small acquisition in Spanish, Bilbao. We bought 60% from the founders of this company. The four founders, they keep 10% each, and they remain very committed to the business. Owasys is doing wireless gateways and platforms for what we call mobile machines. This could be utility vehicles, it could be AGVs, and this kind of transportation, things that are moving that need local control, but also wireless technology, cellular or short-range wireless. It's a small company, revenue around SEK 6 million, good EBIT level, also good customers, good growth, and good technology. We see an affinity here to also take some of our software components and put that on top of the Owasys product. It's small, but it's a nice area for us, and we believe that this is opening a new door for HMS Networks into the interesting area of mobile machines. I'm sure you're very curious to hear more about these financial numbers that look good. Joakim. Thank you, Staffan. As always, I'm going to start out with talking about order intake. If you start by taking a look at the graph on the left, we really like how this started and starts to look like. Staffan already mentioned, we have SEK 606 million in order intake, up 100%, nice round figure compared to obviously a weak Q2 last year, but still very nice comparable. 88% of that is organic. We can see that all our businesses are growing very well indeed. The same number for the H1 of the year is SEK 1,170 million compared to SEK 703 million. 67% up organic, 60% up. I just wanted to mention and talk a bit more about the stocking effects that we see. We have SEK 100 million in Q2, roughly, and SEK 170 million year-to-date. Of course, that will come back sometime to impact the future order intake, because what it really means is that we have orders that should be placed in Q3, Q4 that are being placed now. I think the reason is that we see sort of a ripple effect through the whole chip supply chain, starting with the semi foundry saying that instead of placing forecasts, you need to place orders. That message is escalating through the supply chain and also impacting us, of course, and our customers as well. This SEK 170 million is our best judgment of what we think is sort of out of period orders. Given the situation that is still quite strong in the market, we see very good GDP growth numbers, we see strong PMIs, and macro experts say that this will continue in a good way. We don't really know where we will see this SEK 170 million impact us in a negative way. It might actually be that it will not even be this year. We guess that it will be a slow process when the market is stabilizing and component availability becomes better. It's difficult to say exactly. Looking at the different markets, I think everything is good. Europe, obviously very strong, more than 100% up. We had also a tough quarter in Q2 last year in Germany, France, Italy, and so on, when we see really good comeback in those markets. I also wanted to highlight Ewon, which is also performing extremely well. This is our remote access offering. What we see is a bit change behavior from some customers that used to have an optional remote access feature, and more of them are now standardizing to remote access, and that is obviously a very positive trend for us because that will be with us for the coming time as well. Going over to the net sales situation. Also here we have a good development, SEK 474 million compared to SEK 355 million, so 33% up, out of which 28% is organic. For the H1, we have SEK 929 million, 30% up, or 33% organic. I think also here we have a good development in all brands. I wanted to point out Procentec that is doing extremely well. We have doubled sales in Procentec. I think we have to say that the brand has reached a new level. It's a combination of a strong development of existing customers, especially in the U.S., it's doing very well. We also have some really interesting new customers, global customers that are choosing Procentec, and that we'll also expect to have a good development going forward with this business. Ewon as well, doing well, 45% up. It's also good to know that Intesis, our brand within building automation, is doing well, growing 26%. This has been a few challenging quarters in the building automation space, and we haven't seen the rebound as we have in the industrial automation space. Now we're doing okay also in the building space, which is good to see, yeah. I also wanted to comment a bit about the sourcing situation and with the availability of components. It is difficult for us to forecast exactly how this will happen. We know that we have an impact in Q2 of about SEK 30 million that we couldn't deliver, and we had to push out those orders into Q3 and Q4. We will have some components coming in end of Q3. It's a bit uncertain how much we'll be able to get out in Q3. It might be that we'll have a spillover into Q4. I guess what we say is that it's likely that Q3 will be a bit weaker, Q4 a bit stronger. I don't want to speculate on exactly how much, because we simply don't know. I think the main point we want to make, though, is that the order book is very strong. It's the best order book we've had ever, more than double compared to the average order book last year. Even if we have to push out some deliveries, we have the orders, and the customers don't really have any alternatives. We're not that afraid of losing business. It might be a bit of a timing issue when we can deliver. Sales by region overview looks about the same as it always does. We have the EMEA region being the biggest one with 61% of our sales, up a little bit from last year that was heavily impacted. The U.S. or Americas is 22% of the total, APAC 17%. Going over to look at our results, here, we had a record quarter with SEK 121 million EBIT, a good margin of 25.5%, up versus 19.4%. The main driver here is the high volume, of course. We also have continued good gross margins of 63.7%, so we're quite happy with that number. We see that the price increases and the work we did last year is paying off. We see full effect from the price increases. Even if we have a slight hit from component increases, we have that impact is about 1% negatively. We still manage to have a solid level on the gross margins. Of course, also the volumes itself help a little bit to get better utilization on our fixed cost. That's also working in our favor. The OpEx is under control, we must say. I guess the relevant comparison is up SEK 90 million compared to Q2, taking out some non-recurring items in Q2 2020, 12% up in the OpEx. I think we're about in line with what we had in Q1, which we expected. What we can say going forward is that we have launched some interesting growth initiatives during the quarter that will impact slightly in Q3, but primarily in Q4. I think Q4 will definitely be some 10% up from the OpEx levels that we see right now. Let's just have a look at the EPS. I don't have a lot of comments. There's not a lot of interesting things happening here. I think we see a good development, which is just a result of a solid business. First time over two crowns with SEK 2.02 EPS, compared to SEK 1.24, that is a good increase of some 63%. Also for the first six months, we had a nice SEK 3.94 compared to SEK 2.26. Having a quick look at cash flow, I think we continue to have a good cash conversion. What we believe is positive is that we keep the working capital in good levels in these kind of difficult times. We have just small effects from SEK 5 million negative working capital impacting in the quarter. All in all, SEK 126 million compared to a very strong SEK 115 million that we had in Q2 2020. There we had the working capital working in our favor a bit more. For the H1 of the year, SEK 257 million, also a very good number, and you see on the bars that we have a good trend also on the cash flow. Which brings us to our last slide, looking at the debt situation. I think if you take away the leasing debt of SEK 75 million, we're almost debt free, only SEK 3 million in debt. Also very positive that despite that we paid a dividend of SEK 93 million in Q2, we managed to decrease the debt level. As you probably have seen all the stuff I've talked about, we made the Owasys acquisition July 1st, which will of course impact the debt situation slightly, but it's on the margin, I'd say. I think all in all, we can look back on Q2 with a strong balance sheet, and you know about our M&A agenda, I'm quite optimistic that we have the means we need to fulfill that. I think with that, we will leave over to operator for some questions. Thank you. If you wish to ask a question please dial zero one on your telephone keypad to enter the queue. Once your name is heard, ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Joachim Gunell of DNB Markets. Please go ahead, your line is open. Thank you. Good morning. Just one follow-up on the stocking effect here. Can you comment a bit about the nature of this, whether it's broad-based or whether it relates to, call it, the larger orders from fewer customers being put? And also perhaps any comment on the trends you allude to, how they have progressed throughout the first two weeks of Q3? Sure, I can give it a shot, Joakim. Thanks for the question. Do you want to take it, Staffan? No, please go ahead. I think your analysis is right what you imply. The main effects come from our larger customers that have our products embedded. It's mostly impacting the Anybus brand, but we also see it across all brands, but Anybus has the biggest impact. They are taking some precautions and putting some extra orders in place to make sure that they'll get the volumes going out. For the smaller customers, we don't see the same effect. Also, we don't have the same effect on gateways and those kind of products that will be more I-need-it-right-now type of business. The second part of your question, sorry, I missed to take. Yeah, the first two weeks, sorry, of July. I think it's continued in a good way. It's pretty much the same business that we saw in Q2 that is continuing. Good to see that the market is still there. Understood. Perhaps also some comments here. With regards to the Owasys acquisition, the balance sheet grows stronger by the day as you continue to deliver excellent results here. Any color here on M&A pipeline with regards to that? Okay, you just completed the Owasys acquisitions. You have made some recruitment with regards to your M&A organization. What can we expect there for, call it, the coming six months and also, call it, what types of targets are you evaluating? Because it seems like the Owasys acquisition is slightly a step outside of your core factory automation verticals. Are there perhaps any specific verticals where you see larger opportunities to complement your existing business? Maybe I can start mentioning something, and Joakim can fill in. I think what we do with Owasys is, you're right, it's not maybe factory automation, but it's industrial automation. We see more and more this mobile machine tools, like AGVs in a plant with logistics and these things. We see a combination of mobile machine, battery-powered machines, and communication is a quite strong combination for new things. We believe that this is a market that will have more and more of telematics and communication. We believe that this is a very close and adjacent market for us. Actually, we have a couple of customers already before Owasys, so we think this is close to us and interesting opportunity. This is an example that we try to make positions that is close to our business but open some new doors. We also look on, for example, areas in water, wastewater, and these kind of things, so we can take a step into a vertical. That's one part of our acquisition strategy. Maybe, Joakim, you can talk a little bit more about the acquisition pipeline. Yeah, sure. I'm happy to do that. I think what we've done, we have the shortlist that we've had before with a couple of companies that we monitor. What we've managed to do now in, I guess, with expansion of the team, is that we're starting to build a much longer long list. We're just in the process of getting that down to a shortlist. I think what we'll see now going forward out is that we'll have more companies that we will be talking to and having on the shortlist to monitor daily. Of course, this will take some time for conversion for these new prospects, but I think it's very good that we do this work and that we're getting a strong pipeline because we need it to meet the targets for 2025. I think I don't have a lot to add on what type of companies that we're after. I think Staffan did a good job there. Understood. Just one final one from me. With regards to that, you commented that we should see an OpEx step up of 10% going into Q4 from where we stand now. Still, with the demand backdrop, you will materially outperform your profitability target in the medium term, and I know that that could be diluted from acquisitions going forward. How should we think about the OpEx space for, call it, the next year, and what investments need to be taken to continue to deliver a stellar growth? Yeah. I think the first step we're doing now is with these initiatives that we're starting up now. I think we'll do some more, of course, next year. Can't say exactly since we haven't made the plans. We did some expansion into China this year, opened a second office. That will certainly be interesting to look more in that market that we will see good growth and a lot of nice opportunities. That will definitely be on the initiative list going forward. I think we need to look in the product portfolio and see if there is something that we should escalate and try to do a bit quicker. I think you'll probably see a slight increase for next year as well. I think that's pretty given. I think we need to do that in order to be able to deliver the organic growth targets that we have in place. Now we're going to have also, I think, quite strong 2021 that we of course, going to beat in 2022. We need to do some new things there. In regards to the EBIT target, I think we also see that we're going to perform quite well in relation to that target at the moment. I think we need to wait till the situation is back to more normal business before we make any comments on that target. I think you also pointed out that given the pipeline that we have, we know that most targets will have a dilutive effect to the EBIT level. I think what we have to wait and see. Understood. Very clear. Thank you both, and have a lovely summer. Thank you. Thank you. Our next question comes from the line of Viktor Högberg of Dagens Industri. Hello, good morning. Just checking on the cost side, the acquisition related cost SEK 6 million in Q2. Was that due to Owasys acquisition? It was done in Q3, so would that mean anything for Q3 then? That's the first question. I'm not sure if I fully caught the question, Viktor. Do you mean if we had an acquisition related cost in Q2? Was that the question? Yeah. In the table in the backup report that said acquisition, EBIT excluding acquisition related costs SEK 127 million. I don't know if that was a mistake or if there were any adjustments. I understand what you're after. What that shows is without the amortization on the other values. Oh. It's also the acquisition cost for Owasys, but that was minor, so that's not a lot to talk about. Okay. Okey doke. In the cost guidance, you said the 10% up in Q4. Was that for the full Q4 level or the run rate going out of Q4? I think for both. Both for the impact in Q4 in comparison to the current level we are at, but that will also be affecting run rates going forward. Okay. You had some comments on it, but I wonder if you could elaborate a bit further on the order intake. two quarters now with very strong order intake, SEK 170 million together in non-recurring, if we could call it that, orders. Could you maybe try to quantify, I don't know, not a specific number, but maybe a range of what to expect for Q3 and Q4 H2 orders? Underlying order level seems to be around SEK 500 million in both Q1 and Q2. Is that to be expected underlying as well in Q3 and Q4? Would that be hard to reach these SEK 500 million levels given the front loading on the orders due to the stocking issues or component issues in the first half? This is difficult to speculate about, but I think you're right that the level beneath the stocking effect is probably around the SEK 500, but we don't really see that this kind of adjustment back from this little bit not normal stocking situations will go away. We think it will continue maybe not to the same level, but there will clearly be some stock effects also in Q3. People are concerned about component deliveries, and when we talk to foundries, especially TSMC and other big suppliers, they are investing a lot, but it will take time until this is back to normal. We believe that the stocking effect will continue for the coming quarter as well. Okay. You had some that you, I respect that you don't know when it will have a backlash or if it will, but the prospects for 2022 orders then and deliveries with H1 and potentially part of Q3 then being very high orders. Do you have any comments on the 2022 order potential and deliveries and what to expect? Will it be possible to grow orders next year, given what you know now? We focus on our 2025 targets, we don't really have a 2022 target right now. We don't know. It's too far off, I think. The market we see right now, it's very strong, surprisingly strong, I would say. We see normally this market, customers do more CapEx investment when they are at full utilization of their capacity. Now we see a lot of CapEx investments, and we also see investments more in energy savings, sustainability. Maybe there's a post-COVID effect that many industrial companies also invest more in automation and digitalization. I think there are several strong trends that are helping us right now. These trends are not just for this current quarter. I think it will continue for quite some time now. Okay. Thank you very much. Thanks. Thank you. Our next question comes from the line of Fredrik Stenkil of Nordea. Please go ahead. Your line is open. Hi, good morning, guys. I have a question on Owasys. Is it fair to assume that the majority of sales is in Europe or perhaps even in Spain? I did see an Anybus on the picture, though, so I guess they have some in England as well. Also on that, kind of the plan around geographic expansion for them going into the U.S., perhaps. That's quite the business we have today. I would say it's mainly towards European OEMs, not so much in Spain. There's a domestic sales there. I would say that Continental Europe is the big market for Owasys today. We see a potential in America, and one of our ambitions together with Owasys is that they will use our infrastructure and hire some salespeople, Owasys salespeople in U.S. that will sit at offices and use our back office system and things like this, because we see potential for this market in U.S., but they've been too small to really target that. You're right that U.S. is a target market for us. Okay, that's prioritized ahead of Asia then, or will you do both? Yes. It's a small company. We see a lot of opportunities also in Europe here. I think that Western Europe and U.S. is the two targets we focus on with Owasys. Okay, great. Then, both previous analysts have tried to gauge the phasing due to the component shortage, but I'll just try one additional angle, if that's okay. In terms of sales, you did say that Q3 is likely to be weaker than Q4. I wonder if you could say anything about Q3 relative to Q2, because I'm thinking that demand is not what's holding you back here, it is the supply of components. If you could comment on how the sourcing has been or how it's looking for Q3 compared to Q2? Let me just start, and Joakim can fill up with more details. I think we see a very high volatility at the moment. I have one example from one order for one of the major semiconductor companies that had been changed 24x, one order, the last quarter. It's a very high volatility, and we see changes day by day and week by week. I think this will continue. We have a good relationship, and we are seeing some improvements with these suppliers. If it comes in what goes out in Q3 or Q4, it's very difficult at this time to say. We feel confident that we will not lose the orders from our customers because we are, in many cases, specified into their bill of material. We feel quite good, but it's very difficult to comment about Q3 deliveries. Joakim, you can give maybe a more detailed picture of this. No, I don't have a lot more to add. I think the span would be rather big if we were to give a span, so we wouldn't do it. What we maybe can say that we think that Q3 will be difficult to reach the Q2 levels. I think that's what we probably can say, and it's not because we don't have the demand, it's because we just can't get the components in the pace that we need. I think we'll probably leave it at that. Excellent. Okay. Thank you. Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay, seems to be no further questions on the line. I'll hand back to our speakers for the closing comments. Thank you. Let's just say that we are super happy about the continued good progress. After a strong quarter one, it feels really good to have this strong quarter two. We see that the trends are still continuing to be favorable for us, so we look forward to the coming quarters here. We have issues with components, we know that, but in the long run, we are quite sure we will manage it, but there will be some volatility between the coming quarters, but we are not really super concerned about it. We are working closely with our customers to try to mitigate what we can about this. I would like to thank you for joining this call and thank you for following HMS Networks. I know that some of you need to look on other reports the coming days and weeks, and some of us can go for a couple of weeks vacation now. I would like to wish you all a very nice summer. Thanks for attending.