Welcome to the HMS Networks Audiocast with Teleconference Q1 2022. For the first half of this call, all participants will be in listen-only mode, so there's no need to mute your own individual lines, and afterwards there'll be a question- and- answer session. Today, I'm pleased to present CEO Staffan Dahlström and Joakim Nideborn, CFO. Please begin your meeting. Thank you, operator. Good morning, everybody, and welcome to this beautiful beginning of Easter morning here. It's a pleasure to present our quarter one report. As normal, I will start with a summary and introduction of our business, short business update, but I know you all are waiting for Joakim's updates on the numbers, so he will take the financial results at the end. Let's quickly make a review of Q1. I must say that we are pretty happy with the situation despite the component shortage and the challenge we have there. Order intake continues to be very strong, but keep in mind that part of the strong order intake is not only market demand, it's also a compensation for long lead times. Also our customers are building out inventory, and we try to be very transparent about the boost order, and Joakim will dive into this later. Also net sales growth of 14% considering the chip shortage is good. We've been fighting a lot for reaching this number. We are very satisfied that we are keep on growing despite the challenges we see on the component side. This is fine. EBIT, note that we have event here where we have a balance sheet change revaluation, and Joakim will talk more about this. Take a look on the adjusted EBIT and adjusted EPS. We are maintaining a good strong EBIT, adjusted EBIT margin 21.7% over our target. We are happy with that. Cash flow is good, but not as good as it used to be. Reason why is that we are building up more inventory. Trust us, we are very happy that we are building up some inventory as well because that this will help us going forward. All in all, positive quarter one, and I think we can skip the rolling 12 and move into our business updates. Some of you know our business very well, some of you are new, but just a summary, we are HMS. HMS is hardware meets software. We make sure that industrial machines and devices can communicate both with each other and different IT systems. We have the integrated offer of our four brands of Anybus, Ewon, Intesis, and Ixxat. This is integrated and use the same go-to-market channel around the world. We made a couple of acquisitions, smaller acquisition last year. German WEBfactory, a software company. We started with 75%, we now own 100%. Procentec, Dutch company working with network diagnostics, very interesting. We started almost two years ago with 70%, and early this week we acquired the remaining minorities. We now own 100%. The small but very interesting Spanish Owasys working with communication solutions for mobile machines, where we own 60%. When we look on our business, if we move to the next slide, we have two major customer groups. We have the makers of industrial equipment, companies such as Atlas Copco, ABB, Mitsubishi Electric, but we also have users of automation systems. These are companies that use automation systems such as BASF or Volkswagen or this kind of pulp- and- paper- kind of companies. If you look on our go-to-market on next page, this is quite important because on the maker side, we have two typical customers, either device manufacturers making different devices, drives, robotics, these kind of machines. This is 75% of our revenue. Sorry, 43% of our revenue. There we have a business model that is very sticky. We are working with design wins. They integrate our technology inside their devices. We also see that the flip side of that good sticky design win model is that we also have a very— We need to have a lot of sales initially before we get revenue. It is a long sales process, but it also remains design win for seven to up to 10 years. Secondly is our machine builder business. This is today or last year, 35% of our revenue. There we try to be part of their bill of material. Of course, we always dream about becoming the standard part of bill of material. In most cases, we are more an option. So when this machine need a remote access or when this machine need to connect a certain manufacturing line or something like that, then they add an HMS product to that bill of material. We go to market through direct sales with large customers and distribution sales with many, many small machine builders around the world. Finally, we have our end users and system integrators. It is a smaller part of revenue, but we also see good growth here. Here we either work with system integrators to help them in a large project, where we help them specify the right communication technology and the right products from us to solve their big projects. But we also have like a traditional product sales. We advertise our products on our websites and marketing channels, and they just find that our product fits very good to the requirements they have there. We work here with traditional distributors and a quite good growing e-commerce distribution as well towards this market of end users. Let's take a look on our vision and our targets going forward. We have a vision to become the world's greatest industrial ICT company. We believe that the way to go there is to follow our mission, and our mission is to enable valuable data and insights, allowing our customers to increase productivity and sustainability. This is a good market to be at because a lot of our customers, they realize that there's a hidden information inside their machines, and if we can liberate this data and connect this to their other system, it can help them with their productivity, but also for their sustainability in energy saving and doing things smarter. Our group objectives for 2025 is environmental. We want to become a company that is net positive in our CO2 emissions. We do things here internally, but we also work a lot with our customers, where we see a big impact using our products, which is helping our customers to do major savings in their CO2 emissions going forward. We also believe that if we can have happy and high-performing employees, they will generate loyal customers, and we really like loyal customers. We focus a lot on Net Promoter Score with our employees and also with our customers. We rate well beyond our target at the moment. We are very happy about that. We also keep on being a growing company with good profitability. Financially, we would like to be beyond SEK 3 billion in 2025 in our revenue, combination of organic growth and some acquisitions, and maintain a well EBIT margin well over 20%. This is our targets. How is it going? Well, if I start with a short business update from quarter one, it's very similar to the previous quarter. We see a strong demand across all geographies we work in. Drivers are increased automation, digitalization, energy monitoring, remote access, and now also more and more sustainability and also electrification. We see super strong growth on all markets. Part of this, as I mentioned before, it's a market where we and our customers and other suppliers have problems to find electronic component. We have long lead times, our customers have long lead times, and this is also building up boost effects in the order book. We are estimating that that part of this good order intake is also a boosting effect, orders that are placed earlier than normal, and we estimate this to be SEK 250 million in quarter one. We expect this situation to continue for the remainder of the year, but we are expecting that the situation will be better from second half of 2022 here. We are seeing some light in the tunnel when it comes to component availability. As I mentioned, we acquired the remaining minorities of Dutch Procentec earlier this week. We now own 100%, and we are super happy with this company. We believe that as a 100% owner, we think we can accelerate the commercial success, especially in North America and Asia, where Procentec themselves have been not focused enough, and they didn't have the local organization. We have that, and we can now scale this business up. All in all, a good business quarter for quarter one, and we are, as you hear, quite positive about the future. Joakim, let's talk about some numbers. Thank you, Staffan. I will do that, and I will start with our order intake, which is extraordinary SEK 857 million, as you already know. Looking at the graph in the top left corner, you see that this is continuing on the very good trend from 2021, also reaching our new record levels. With a 41% organic growth, we were of course quite satisfied. Then as Staffan said, we have this boost effect of SEK 250 million, which is a large part of that. But the underlying market is also quite strong, and we see a lift from previous quarters also here. If we do the adjustment for this boost effect and also taking away currency effects, we see underlying organic growth of 14% in orders compared to the already strong Q1 2021. Looking at the book-to-bill, this is significantly better than our sales level. The book-to-bill of 1.66, which is of course extraordinary for us and not a sustainable level to be at going forward. We think what we will see going forward, where when we hope that the supply chain will stabilize somewhat, we think that the order intake will come down. This boost effect will go down and disappear towards maybe the end of the year or so. Then our sales levels will also increase when component availability becomes better. That should be normalizing. All brands are growing. That's good to note. The driver here is our Anybus business with 60% organic growth. The main reason why this is driving growth is because we see this design win business where customers have our devices as a part of their bill of material. They are very afraid that they're gonna go dry on our stuff. That's why we see this order placement far out in the future. We already have many of our large customers that have placed a full demand for 2022 already now. The expansion and this boost effect is really that more and more customers are realizing that this uncertainty in supply chain will continue for a bit, and they want to make sure to have as much as they can in their own hands. That's the main reason for this situation. Going over talking about sales, also quite okay quarter with SEK 517 million and 5% organic growth. We see that for the first time we have rolling 12-month sales over SEK 2 billion. That is a bit of a milestone for us. Good to see. We knew that we wouldn't be able to match the Q4 for numbers. We also talked about that when we released the Q4 report. We caught a bit of a break on the component side. To be honest, right now, it's really component availability that is deciding our delivery levels. Staffan talked about it a bit already. We know that Q2 is still looking quite challenging. We hope at least the picture that we see now is that Q3 and Q4 will be better. Difficult to say how much better, but it's we think that we'll be able to reach somewhat higher levels towards the end of the year on this side. Also worth mentioning on the building automation side, that's been, I'm not gonna say bad, but it's been a bit more hesitant than the industrial automation part of our business the last two years. Here we're now seeing a good growth of 32% within the Intesis brand. So that's also a new record quarter for Intesis. We think that now when the lockdowns have released, we'll be able to have a decent market also for the building automation business, even if it's a rather small share for us, about 10% of the overall group. I wanted to show you, I think you maybe already made the analysis yourselves, but the order intake or the boost effect of order intake in relation to the total order intake. Here you see what we've been communicating over the last five quarters. You also note Q1 2022 is the highest level of this boost effect. It's also by far the highest level in total. But we see that the underlying demand has bumped up a bit from levels around SEK 500 million to now beyond SEK 600 million. The underlying market is strong. We're quite happy Staffan's been through the drivers. Still we have this high boost effect. How that plays out to our backlog, you'll see on this slide when we see that our backlog has increased more than SEK 300 million from Q4. We are now at about SEK 1.2 billion in order backlog, which is very high for us. We're quite unused to this high level. We also see that we have about 50% of our orders for delivery more than three months out in time. There's still a bunch of orders that we haven't confirmed. The real number should probably be more than 60%, since there will be only a small share of unconfirmed orders that will be confirmed within the coming three months. It's an unusual situation for us, and we believe that even if now the supply chain will be stabilizing, we don't expect this to fully normalize to the levels between maybe 15%-20% out of orders for delivery more than three months out. We think that customers will have adjusted to a different way. The just-in-time thinking might not be back as we've seen before, at least not in the midterm. Sales per region looks like it normally does. We have about 60% in Europe, and 20% in Americas and 20% in APAC. This is pretty much the picture that we see for Q1 as well, so nothing strange there. Let's then also take a look at our profitability. We, as you've seen, we reported SEK 139 million, but the adjusted number, which is more relevant, is SEK 112 million and 21.7% margin. The difference of this SEK 27 million is related to a revaluation of option-related debt for Procentec. As you understood, we acquired the remaining shares two days ago, and we already knew the purchase price. That was pre-read. We knew that when we went out of March, so we could determine this purchase price perfectly already end of March. The difference then is this SEK 27 million. That is a positive EBIT effect, only one- time effect that we have now in Q1. No cash flow impact, but it's still there. The relevant comparison is then SEK 112 million. I must say we're quite happy with being able to deliver 21.7% margin in this climate as we have at the moment. Gross margins of 61.8%. We're also okay with that, even if it's a drop from the 64% we had in Q1 2021. We see negative effect from price increases of a bit more than 3 percentage points. I mean, this is something that we had impact from also second half of 2021, but it's escalating, so we see even higher effects now and the same will be for Q2. I mean, going forward, the price increases on the components will be there. The difference is that we have now pushed another round of price increases that's been implemented just recently. That will also start to show effects a little bit from Q2, but the main part from the second half of 2022, a stepwise improvement on that side. We hope the gross margin should be able to improve during the second half of the year, is basically what we're saying here. Also worth mentioning, EBIT, sorry, OpEx increase of 11% organically, pretty much related to sales and marketing initiatives, where now everything is opening up again. We can do more activities. We think this is good investments to do for the long run, and we're happy that we managed to get some good new colleagues to drive new sales in actually many of our markets. Going over to earnings per share, SEK 2.41, but maybe more relevant to look at the adjusted, SEK 1.84. Basically in line with the last couple of quarters. Nothing strange to comment on here. It's good to see that we are on these levels. Let's have a look on the cash flow as well. Here we have a pretty big drop compared to the previous quarters as well. Staffan mentioned it already. We have a SEK 50 million buildup of working capital, out of which about SEK 30 million is related to inventory buildup, which this sounds strange to say, but we're quite happy that we managed to do that. It's not easy these times. What we're trying to do is improve our odds to deliver when we get those key components that we hopefully will be able to get more of in the second half of the year. This is in line with our plans at the moment. We are not optimizing our inventory too much. We feel like we have the money we need, but we need to have the delivery capacity. This, it feels like a given thing to do. Working capital all in all is still on very good level, 6.6% of sales. This will move north a little bit. We still think this will remain below 10%, All in all, in control. Final slide before we let you ask questions, looking at the balance sheet, and here we have a net debt of SEK 299 million. The main difference compared to last time is this revaluation of this option- related debt of SEK 27 million. Other than that, we've been expanding the cash a little bit, but a small decline then from 347 in Q4. Looking at the metrics, net debt to EBITDA 0.52 in good shape. We feel that we have the firing power we need in relation to our M&A pipeline, so that feels good going forward. With that, I'd like to hand over to the operator and see if we have any questions on the line. Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can 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 very much. Good morning, Staffan and Joakim. I mean, in light of the stellar organic growth, thank you for being so helpful with describing what is actually your perception of underlying organic growth in the order backlog and what's driving that. Can you talk about the inventory levels that you're seeing in the channels at your various customer groups? If you can divide that into device manufacturers, machine builders, et cetera, and perhaps what of these customers, what of these customer segments are actually driving growth where we stand now? I think if I start with that, and Joakim can fill in, if we look at this picture, I showed here with device manufacturers and machine builders and end users, we feel that most of the device manufacturers, they fill up their inventories. They place orders much longer than they used to do in the past. The majority of the boost effect is coming from here. As Joakim mentioned, we have a lot of the Anybus business in this group. When it comes to the machine builders and end users, we feel when we talk to our distributors that they have real demand behind each order, at least when we talk to them. Sometimes we get a feeling that this is the story they give us just to be able, so we don't prioritize other orders. I think that the major buildup is on the left side of this picture. On the right side, we have very little inventory that is excess inventory. What we have there is sold by the distributors very quickly. Understood. Can you say anything about what certain end verticals, if it's general manufacturing or if the process industries or et cetera, that is really, I mean, standing out in terms of pockets of growth? I must say that it's very broad. On some markets like in Japan, we've seen especially good development in automotive, electronic manufacturing, of course. The traditional industries, manufacturing in general, process industries, food and beverage, pulp and paper, we see that there's good demands in almost all segments, semiconductor. I think it's broad-based both in geography but also in verticals. Thank you. How should we think about historically we've seen this trend where when you're showing this positive trend in the book-to-bill, that has obviously a boost effect on the margin trajectory in HMS. How should we now balance in that we are seeing book-to-bill at very high levels? You expect this to be real demand, and more or less equally, it would be fair to assume that okay we'll be seeing a declining trend in the book-to-bill as you deliver on this order book. Balancing in that okay gross margin is obviously also higher in HMS at this stage. Would it be fair to assume that for this year and perhaps the next based on what you see in the order book, there shouldn't necessarily have to be I call it a margin decline from current levels in HMS, or is there anything that is different in this time around, so to say? I must say that it's very difficult. I understand the question and it's difficult. It's a good question. We work with this on a weekly basis here. We were expecting the boost orders to go down, and this is what we see in quarter one. We were obviously wrong. It's difficult to say. I think a lot of our customers are feeling that let's place some extra orders. It wouldn't hurt. They have good demands, and everybody's positive. I think this boost, we expect the boost orders to level off later in the year. It will probably take longer time than we think. That's our feeling right now. Secondly, with margins, we see a quite dramatic price increase on electronic components. On some components, we see 10 times or 20 times higher prices than regular. We are fighting this quite much, but you know, working on the spot market, then the price is high. We are trying to mitigate this with price increases to our customers and balance this. Our ambition is to maintain our margins through this. There it will be some changes per quarter based on product mix and how successful we are, but also the timing effect. Some of the price changes we do take a longer time to get impact on when we have this big order book. I understand I don't give you a clear answer because we simply don't know. We are following this very careful, but it's very difficult to estimate. Joakim, do you have anything more to say? [Joakim Nideborn] here. Yeah. No, maybe that's, I think right now, maybe it doesn't matter so much when we get the orders. That's not gonna make a big difference when our sales come. What we think is that the underlying demand is strong and it's growing, so we believe that sales will, as long as we manage to source components, sales will have a solid journey for the coming quarters. With that, yeah, well, I don't see why we shouldn't be able to maintain decent margins as well. Perfect. More with the broader top level question. Can you say anything about, I mean, what your current priorities are from an R&D standpoint? I think right now, unfortunately, I must say, we put a lot of effort on redesign of existing products just to be able to ship them. Unfortunately, we need to allocate R&D resources on things to maintain our business rather than developing it. I would say that maybe half of our R&D resources today is allocated into projects to maintain our current business. If you look then on technology, we haven't talked so much in this report about new things such as 5G. We are continuing that journey, but we've seen some success there. As we've been saying for quite some time, these new technologies take time to get success in industrial automation. We keep on seeing some good success in mining and special applications, but it doesn't really move the needle from a top line, total top line at the moment. I think R&D on new things is related to 5G, IoT. We spend quite much time now on energy, battery energy systems, storage and stuff like that. That's some new areas there in R&D. Thank you very much. That's it for me. Thank you. Thank you. Currently, we have one further question in the queue. Just as a reminder to participants, if you wish to ask a question, please dial zero one now. That next question comes from the line of Viktor Högberg of Danske Bank. Please go ahead, your line is open. Yeah, good morning. So just a couple of questions on your current visibility on delivery capacity and what to expect, 'cause you're quite clear there is a daily challenge in terms of sourcing components. What to expect in the near term? Will you be able to maintain this level in terms of deliveries for Q2 as you saw in Q1? Do you expect it to be gradually better Q2 and then materially better in Q3 and Q4? Can you help us along the way there? Q2 is very difficult. I think if you look on Q1, we had a weak January and February, better than expected in March. It's a little bit the timing effects on deliveries and components. We are quite concerned about the short term, like Q2, and after that, we are expecting a gradual improvement. Very difficult to say what we land in revenue in Q2. We don't have that visibility today. It's too much uncertainty. Would you dare to say a range of possible outcomes? Not me, but Joakim, do you have that, the guts to do that? Yeah, I can give you a wide range. No, I think, honestly, I think we know that Q2 will not be great. It could be ±10% from where we are today, probably more likely on the minus side. We think what we hear is that Q3 and Q4 should be better, but it's still only promises from suppliers that's been changing many times before. We don't know, but we think that it looks better from what we hear. There, I do not wanna give a range because it's way too uncertain. I get that. Given the order intake now and a half of it with deliveries further out than three months, how much of that is for deliveries in 2023? 'Cause I assume there are some orders for 2023 as well in the order backlog. Just thinking about what to expect in terms of delivery, the mismatch in delivery capacity and the orders customers might want it in H2, but will you be able to fulfill all of this, the order backlog, given the current situation? That we think we will be able to, and about 10% of the current backlog is for 2023. The problem there is that, on the pricing side, it's still quite uncertain what the component pricing will be. It's a bit difficult to agree on a price with the customers for 2023. We think we'll be able to. We're quite convinced that we'll be able to get out the backlog for 2022. Okay. [crosstalk] I'm sorry. There are also actually, I would say a portion of our order book is not even fixed in delivery dates from HMS yet. We are still struggling with some of these things. It's a high uncertainty on some of these orders. If it comes in quarter four or quarter one next year for delivery, I just wanna flag for this uncertainty that we don't really know that. Yeah. No, no, I get it. The order intake level here seems to be on an underlying level, some SEK 600 million. Previous levels have been around SEK 500 million. You're quite clear that you see strong demand all over the place, geographies and products and verticals. Do you think you're taking another step here in terms of underlying demand, or is there something special now in Q1? I think the drivers we are seeing longer term is really supporting our business, and I talked about these drivers. Even if there are uncertainties in the world around us, we still believe that these things are strong when it comes to improvement in automation and digitalization in our industries. We think this will continue. If SEK 600 million is a new level, maybe. We would like to grow quarter- by- quarter, so SEK 600 million is not surprising to us. If it comes in this quarter or next quarter, it's difficult to say. Of course, having a revenue on that level is our ambition for the future, of course. In terms of price increases, you said that you pushed another round now to your customers. Can you help us with what kind of magnitude are we talking about? Here we're talking about single digit, high single digit. We did this at the start of the year. We do another round of a high single- digit increase across the line. We are also doing a smaller single- digit adjustment on the order book. We are having good discussions with customers. Of course, they are not happy with prices, but quite many of our customers say, "Okay, you as well." A lot of suppliers are raising prices. We don't feel that we are sticking out with our increased prices. I think we are following the — well, I was almost about to say the norm in our industry with these price increases. I think we are getting away with it. The question is always that, what is the conversion? Do we get 100% to convert to new pricing or 80% or 60%? There will always be customers with pushback that we need to deal with in some ways. We are happy to see how successful we've been on price increases beginning of the year, but also this new thing we did from 1st of April has been quite successful, I would say. Do you think these in a situation sometime down the line when sourcing on a global level normalizes, customers or not everyone's scrambling to get the same stuff at the same time. Do you think there's potential for prices to come down again, or will these price levels stick? I'm thinking about your prices and the prices your suppliers s ay that you will have to pay. What are you thinking about the price level in a normal market again, when that will be? Yeah. I think that today, this is just guessing, but I think today we are on a high level. I don't think it will go back to what it was a couple of years ago. Competition is still there, but commodities, energy and everything, transportation is changing. Until this go back to 2018 levels or something like that, I think we remain on higher pricing. We also see that in some of our application, the pricing on our product has been less of an issue than we thought. Now we see that some customers, they say we are still only a few percent of their machine cost. We don't feel that we get a super high pressure on the price. I think in some applications, we believe that this high price will remain. In some, it will go back, but I don't think it will go back to what it used to be. Of course, it's also increasing. Our ambition here is to maintain margins. That's our ultimate goal here. Margins, you're speaking about EBIT margins then? They are speaking of gross margins. Okay. 'Cause you're trading at an elevated level compared to your targets, which were set before this situation really accelerated. Your growth considerably above organically, considerably above the target level or the target implied level and margins considerably above as well. Do you see a need to revise those targets, or do you think they're still valid on a longer- term horizon that we're just in a very special situation last and this year? I think if we look on what we said here when we started, the journey on towards 2025, we said that we would like to be over SEK 5 billion, 3.14, and we said that would be a combination of M&As and organic growth. So far, during this two years, our organic growth has been way much better than we expected back in 2020, but we've also been a little bit slower on the M&A side. Right now, we have no plans of changing the target in short term, but maybe this is something for, I don't know, 2023 to revisit. Right now, we feel that we still have work to do to reach the SEK 5 billion. Let's see how that develops. I think, we feel very comfortable about the targets. Maybe that's a good indicator that they should be changed going forward, but we are not there yet. Okay. Thank you very much. Thank you. Thank you. There seems to be no further questions from the phones at this time, so I'll hand the floor back to our speakers. Thank you very much. Joakim, any additional comments from your side? No, I'm happy with this. All right, great. It's up to me to say thank you very much. Thanks for following HMS. Thanks for joining this call, and I wish you all a Happy Easter and some days off. We are back on work to keep on fighting for components and increased revenue for the coming quarters here. Have a nice Easter, and thank you.