HMS Networks AB

STO:HMS

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to the HMS Network's audiocast with teleconference for Q4 2021. [Operator Instructions] Today, I am pleased to present CEO, Staffan Dahlstrom; and CFO, Joakim Nideborn. Speakers, please begin.

[Staffan Dahlstrom, Co]

Thank you. Good morning, everybody, and welcome to this Q4 call from HMS. So we're on the setup as we normally do here. I will start with a summary introduction followed by a business update, and then Joakim will continue with more financial results and details on analysis.Let's move into the quarter 4 numbers, some of you may have already seen them in the morning. We see very good numbers for our net sales, growing by 41% in quarter 4, but we also see a very -- continued very good order intake, up 71% to SEK 699 million. Joakim will dig more into this. There's some boosting effect here as well, so we'll move over to that a bit later.Strong EBIT, good development. However, we have -- the things we are not super happy with is a little bit depressed gross margin, and Joakim will come back to this and also dig a little bit more into our OpEx in Q4. So our EBIT lands at 19.2%, slightly under our long-term target of 20%.Strong cash flow. EPS of SEK 1.85, so all good. And this concludes to a very good 2021, with a fantastic development on our revenue, up 34%, close to SEK 2 billion. And order intake, SEK 2.5 billion, up 75%. So we do have a big order book that we will talk about a bit later.Good development on our EBIT level and good cash flow. And EPS at SEK 7.61. And actually, yesterday night, our Board proposed a dividend of SEK 3.0.So that's for the numbers. But before Joakim dig more into this, let's talk a little bit about our business. Many of you are familiar with what we do. We are connecting devices. HMS is Hardware meets Software. So we connect data and information from machines, between machines up to systems in industrial applications.Our core brands is Anybus, Ewon, Intesis, Ixxat. But over the last 2, 3 years, we've been acquiring some new businesses, WEBfactory, German software company; Procentec, Dutch network diagnostic company; and recently, the Spanish Owasys, working with communication in mobile applications.And I would like today to dig a little bit, I wouldn't say deeper, but maybe scratch a bit more of the surface on our customer groups. I told you before that we have the makers of industrial equipment and the users of automation systems. But since it's end of the year, I would like to give you some more flavor on what we talk about here.So if we look into, first of all, the makers of industrial equipment, start looking on the left side, we have device manufacturers, very important for us. This is 43% of our revenue. The business model we have here is what we call Design-Win. This means that they integrate support for our technology in their devices and units. And when they sell these devices and units to their customers, they will buy things from us, put inside their device and we become part of their delivery to their customers. So this Design-Win model is very sticky. That's the good side. The bad side is that it takes quite a long time to win these customers, and that's a quite long sales cycle. But again, the good thing is that these products keep on being manufactured for 8, 10, even 15 years. That's a long revenue cycle from these Design-Win. It's a complicated sales process, it takes time. So here, we work with direct sales engineers, own staff that talk to these customers, very important. I will a bit later talk about the Design-Win situation for 2021 as well.But before that, a few words about machine builders. Machine builders is 35% of our revenue. And here, it's a slightly different business model. We would like to be part of their bill of material when they build the machines. And of course, we would like to be as a standard part of their -- all their machines. But step one is moment to become an option so we can be selected as an accessory into this machine design when they go to their customers.And here, we see a mix of direct sales to larger machine builders and distribution sales to smaller machine builders.If we move over to the users, these are industrial end users. Let's see if we get the right slides here. Thank you. Industrial end users could be like a Volkswagen plant or a chemical plant, someone that have a lot of automation equipment and want to connect different cells and machines together. Normally, we work directly with the end user or through system integrators that have the assignment to solve some communication challenges there. This is 22% of our revenue. Either we work with like a project sales, where we -- there's a project of refurbishing a factory and we come in with a system integrator to help with communication there or it's a pure product sales where we market our products with its specification on the website, in catalogs, et cetera, and we simply get orders based on the specification, traditional product sales. This goes primarily through traditional distributors and, to growing part also, e-commerce distributors.So it's -- I think it is important to keep in mind that, on the left side, it's a longer cycle and a very sticky business. And then when we move further right in this picture, it becomes more quicker time to money in the businesses.All right. Let's take a look at our vision and targets. Our vision is to become the world's greatest industrial ICT company. To be able to come closer to that vision, we keep a close eye on our mission where HMS enables valuable data and insights, allowing our customers to increase productivity and sustainability, 2 really important areas for our customers. So this is something they really want to talk to HMS about.We have our target for 2025. The top 3 targets is environmental becoming CO2 net positive, both in our own businesses but, of course, also helping our customers to achieve their environmental targets.Staff and customers, we believe that happy and high-performing employees generate loyal customers, and we love loyal customers. So we have high ambitions on the Net Promoter Scores for our employees, plus 25, as well as our customers' Net Promoter Scores, plus 25.And we want to maintain a good solid growth and profitability. We really like to be a growth company. We are on a good path right now. But 2025, we should be at revenue beyond SEK 5 billion, greater than SEK 3.14 billion. And we would like to have an EBIT level of 20% and beyond.So let's move into a quick business update, just a general thing before Joakim takes over and talk about the numbers. But as we write in the report, we see very good demand across all geographies. We see drivers as increased automation, digitalization, energy monitoring, remote access and sustainability. And we see now that after COVID-19 has, if I say, loosen its grip, that we see that our customers, they realize that the chemical and the pulp and paper and all these base industries, they are still running quite well. So even if there's a pandemic situation, quite many of these basic industries are delivering good and well. So we see good development in all our brands throughout the year. What is notable is that Continental Europe and North America is delivering the best record volumes in Q4.But we do still have a situation with limited components. This component situation continues. This also makes our customers place orders earlier than normal. So we see that some part of our order intake is far out in 2022, and we estimate that the boosting effect in quarter 2 is SEK 200 million. This is SEK 200 million that we get orders earlier than we should normally do. Joakim will talk more about this.What we are not super happy about is the gross margin, where we see that it is lower in quarter 4. And this is a combination of higher purchasing price on components. We need to go out to the spot market to buy components to a much, much higher price than normal. That's one part. We have started price increases, but we made a decision to not increase prices on the accepted orders, confirmed orders. So this means that we need to get in new orders at new pricing to get good margins. So we are quite sure that we'll get back on good margins, the plus 63%, going a couple of quarters ahead. But right now, we are not fully in phase with these 2 things.All right. And if we look on significant events during the year, we have talked about our acquisition of Owasys here during the summer. It looks very good. We're doing some products with Owasys today. They are growing, and we get new businesses there. And it's really about mobile machines, utility vehicles, et cetera. And we see that we can combine some of our technology with some of theirs, and this looks really promising.Talk about mobile, we also look on 5G. We've been reporting about this since a couple of years. And I would say that we see some kind of trend change in automotive, but also in mining -- especially I would say mining applications, that some key customers are moving from early proof of concepts to early pilot installations, which means that the technology is working well and they see that 5G in mining solves problems that were difficult to solve with other technologies. But as we said many times about 5G, this will have an impact in the market, but that impact is probably a couple of years ahead since our customers are more conservative industrial companies and always a bit skeptical to new technologies.We also made a minority investment in the Swedish software company, Connectitude in December. And we promoted our German colleague, Alexander Hess, to be part of our management team, and he will focus on our growing business of information-centric.Finally, I would like to give you some more details about the Design-Wins. As I mentioned, this is from makers, device manufacturers. And if you go 10 years back, this was 76% of our revenue. And we successfully grow this business. And today, it's only 43%. This doesn't mean that it's declining, it's the opposite way. But we also acquired other businesses, and we had fantastic growth in other areas. So what used to be the lion part of HMS is today one important part, but we have more strong legs to stand on today.We see that we have a solid intake of new Design-Wins. This means that we have an attractive offer to our customers. You can see, year-by-year, we've been around this 150, 200 in new Design-Wins. What's interesting is that after the [ interim ] phase, they go into production phase. And this is where we make active revenue. So we have today 1,820 active customers, which is, over 10 years, double number of customer base. So this is important for us, and this generates our growth in this segment of our business.What should be noted here is that we also have the red parts of the bar. This, we call them terminated. This means that it's a Design-Win that is discontinued. Normally, it's a Design-Win that we got maybe 10 years ago. So it's past its heydays of volumes. So it's declining. And we've seen that during these component shortages, several of our customers have been taking tougher decisions about old products to be able to focus their components on new things. So I think that we're seeing a higher number of terminated old Design-Wins. It's more a signal that this is a market where customers are killing old stuff. I wouldn't say that this is an indicator that we are not successful. So this is the tail of old products that is killed more or less.So all in all, we see a stable growth here and a stable business, and we don't see any big trend changes. This will continue for the coming years as far as we can see the market right now.With that, Joakim, more things about financial results.

[Joakim Nideborn, Chief Financial Officer]

Thank you, Staffan. So we're going to start off with the order intake as we normally do. And first, I just want to take a second to look at the graph to the upper left, which is continuing to move in the right direction with another record quarter of SEK 699 million, 71% growth or 65% organic, which is to compare with the organic number 66% for the full year. So you can see that despite that we have meeting tougher comparables in Q4 2020, we're maintaining the organic growth rate as we've had throughout the year. And the year-to-date number, over SEK 2.5 billion, is, of course, a very strong number for us.Just wanted to comment a bit about the boost effect that Staffan mentioned. We had in Q4 some SEK 200 million in boosted orders. So if we adjust for that, we still have an organic growth of 16% on the order intake. So for the full year, we're up now at about SEK 500 million in boost effect. So -- but adjusted for that, we're still at 31% underlying organic order intake growth. So even so, it's a strong business that's going on and with a lot of good business opportunities that are materializing.The main driver that we see in terms of our offering is Anybus, where we have more than 80% organic growth both in Q4 and for the full year. And the reason for Anybus being so strong is that we have a large part of the business within Design-Wins that Staffan has talked about. And here, we see that customers are being a bit more careful, taking on bigger inventories to offset the long lead times and also building higher safety stocks to be on the safe side. We don't see the same effect for the rest of the offering. So there, we have a much smaller boost effect in the orders.Just to mention some sectors that are doing good. You know that we don't necessarily follow this. We'll have the full insight since we have a pretty horizontal offering, but we see a strong business throughout the year from robot manufacturers. We see industrial automation companies in general have been strong. We've been having a good boost in the automotive business from our side in the transition to e-car manufacturing. As you know, we are not in the actual cars but in the manufacturing facilities as such. And also good to note, even if it's a bit smaller, we've been seeing good uptick in wind power and battery applications, which we believe will be industries for the future to work with. So that's very positive.I also want to mention Continental Europe. That's been outperforming quite well and more than double order intake now in Q4, which is -- we maybe did not expect that to continue in that high pace. And we think the reason is that we saw the pandemic in 2020 was burdening Continental Europe the longest, and now we see recovery still going on in a solid pace in Europe.So going over to the sales. You can also see a rather nice graph on the upper left. And I must say that the SEK 571 million that we managed to get out is a bit better than what we expected. I think our supply team has done a very good job in sourcing components. And the fact that we managed to get out to SEK 571 million in the quarter does not really mean, unfortunately, that we'll be able to maintain that pace in the beginning of 2022. So we still see a lot of challenges on the sourcing side, there's still a lot of uncertainty. And unfortunately, we don't think that we'll be able to follow up with a strong quarter in the coming quarters going forward.So we had 37% organic growth in the quarter and almost SEK 2 billion in sales for the full year with 26% organic growth. We're quite happy with this. And we know that we have problems delivering, especially in Q2 and Q3, that could have driven a better sales than we managed to push out.One thing I wanted to mention that is also a main driver for the strong Q4 is that we managed to solve some sourcing problems with Ewon products, that you might remember was a bit tough in Q3. And now we're delivering very good volumes in Q4 with 70 -- sorry, with 59% growth versus just Q3 on the Ewon side.I think it's also worth mentioning, for the whole year, we see good development within the 2 recent acquisitions, Owasys and Procentec. And I think both of them have been outperforming our expectations, and we're very happy with the good development with our new family members.And then we started last quarter to try to illustrate what we believe is more the underlying demand since we see these boosted orders. So we've made the same graphs now for Q4 as well. Starting on the left-hand side, you see the order intake where, as I mentioned, on the order slide, we see a bit of a built-up boosting effect here, escalating throughout the year and in total about SEK 500 million for the full year.Now looking forward, this is, of course, quite difficult to foresee how this will continue. We didn't really expect to see that big of an effect that we've been seeing for the last quarter, maybe even the last 2 quarters. We see that January started on at a good pace as well. So maybe this will continue for a bit more when we still have these uncertainties in the supply chain. We see that many of our customers want to secure the volumes and placing a lot of orders far out in the future. Also, illustrate this on the next slide with another graph.On the net sales side, we've been succeeding better in getting the volumes out in Q4, as you see here. And we don't really expect that the net effect of reprioritized orders have a big impact on our deliveries. We've been reprioritizing some, but on the other hand, we've been able to deliver on some that we didn't expect. So all in all, we think that is about a net zero on the reprioritized order side.And then going forward, as we said, we think this will be a challenging level to continue, but we hope that we'll be able to solve as many problems as possible on the supply side.Just illustrating the backlog a bit on the same theme as we just talked about. You see that we have about a threefold backlog in comparison to normal levels. So SEK 864 million in backlog. And on the right-hand side, you see that about half of this volume is for delivery further out in time than 3 months, which is very unusual for us to have such a big part. We are normally more between 16%, 17%, 18%, somewhere there, for deliveries further out in time in 3 months.And this is also back to the margin -- the gross margin question Staffan brought up as well. Since this is the case and we have decided not to change the price on confirmed orders, it means that we think that we'll have a slow recovery on the gross margin side, but it will not impact too much in the first quarter, then we'll be a little bit more in the second quarter. And then after the third quarter, we believe that we will have a much better impact on the price increases that we're pushing on to the market.In terms of sales per geography, I think here we have Continental Europe and EMEA performing extremely well. Also, Americas is in a very good volume and, by far, a record quarter. So normally, we have about 60-20-20 split. And now it's 61%, 24% for Americas and only 15% for APAC, which is not bad. It's just that the other markets have been performing much better in this particular quarter.Worth noticing is that China, I think, for the first time is higher than Japan for us. And it's not -- again, not that Japan is low, it's that China has been performing quite well in the quarter. So that's good that we have another strong market to put to the collection.Then going over to talk about the results. And I think we can say with the strong deliveries that we had in Q4, we were maybe hoping for a slightly better result. Unfortunately, we have a tough situation on the gross margin side. We see a lot of -- we need to still make a lot of spot market purchases, and we need to pay for priority with our suppliers in order to be able to deliver. All in all, I think those are not difficult decisions. We need to do that, but it's, of course, hurting us short term.So all in all, we were getting to SEK 109 million in EBIT, 19.2% margin versus 18.5% a year ago. And for the full year at SEK 446 million and 22.6%, which is, of course, better than our long-term target, and we're quite happy with that margin level.For the full year, the gross margin is at 62.4% versus 62% a year ago. So I think we still managed to improve the margins over the year. And here, we see that Q1 and Q2 was very strong and then Q3, Q4 a bit weaker. And for 2022, we expect to see the opposite, that we're going to start off a bit weaker and then, as I said, improve towards the end of the year and hopefully be able to show second half of 2022 on slightly higher margins.For you who have read the report, you might be wondering on the OpEx side, that sticks out maybe as a bit high. So we were at SEK 238 million versus SEK 175 million. Organically, that's plus 36% or SEK 63 million. And I think we've been communicating throughout the year that we've been adding on some resources, both on the development side but especially on the sales and marketing side. And here, we've been getting a lot of those resources in through Q3 and then impact in Q4 with the full impact.We also have about SEK 20 million that we would say is like nonrecurring expenses. This is related to sales and marketing. We're doing some marketing campaigns. We've taken opportunity to take some external help to make some projects on the development side. We've been doing some education sessions with our staff and so on. So the SEK 20 million, this, we do not believe to be recurring, but we're taking opportunity when we have a good business climate to do some investments for the future.Looking for the full year, we have OpEx increase of 19%. And then you should also remember that we had very low OpEx in 2020 through the start of the pandemic. And even if we are still not traveling a lot, it's more than what we did a year ago.Then going over to earnings per share. Not a lot of details to share here. More than that, we had SEK 1.85 in the quarter versus SEK 1.21, so a 53% increase. Good to see. And for the full year, SEK 7.61 versus SEK 4.79. And then as Staffan said, the Board is proposing a dividend of SEK 3 versus SEK 2 a year ago.The cash flow has been strong throughout the year, and I think we still have a rather good cash flow in Q4. We had very good deliveries, both in November -- end of November and December, which is building our receivables a bit. So I think the working capital impacts a little bit with minus SEK 24 million, which is, of course, hurting the book-to-bill -- sorry, the cash conversion ratio a little bit. But we're at 78%, which we still think is quite good. And we knew that we would not be able to maintain those really high levels that we've had for a couple of quarters. But still, we think, overall, for the year, we're at a good level and good to see that we convert good to cash in our deliveries.For the year, we have cash flows of -- from operating activities of SEK 508 million in comparison to SEK 370 million a year ago. So also there, a good development.So my final slide, I wanted to share with you, looking at the balance sheet. And our net debt, we have reported SEK 346 million. What I did this time was split up the bar, so you can see what type of debt we're talking about. Some of you might remember that we added on some debt related to the options we have with Owasys and Procentec. We have both a put and call option. So we need to take this into consideration looking at our net debt, even if it's not interest-bearing. So here, we have about SEK 390 million that we wanted to illustrate. So you could say it's consuming potential acquisition space for the future, but it's not really impacting us with any cost at the moment.So adjusted for this, for the IFRS 16 impact from leasing, we're actually in a net cash position, both in Q3 and also in Q4 with SEK 108 million. And I think all the ratios, net debt-to-EBITDA looks quite solid with 0.63, so not really anything to worry about from our side. And we feel that we have about all the space we need for our future M&A agenda to continue to work with that.So with that, I'd like to hand over to operator for some questions.

[Operator]

[Operator Instructions] Our first question comes from Joachim Gunell with DNB Markets.

[Joachim Gunell, Junior Analyst]

Staffan, Joakim, so on the back of that, Anybus is, I mean, call it, the main growth engine, both in Q4 and throughout this year. Can you comment more specifically on what the products were in particular is driving this growth?

[Staffan Dahlstrom, Co]

You mean within the Anybus segment?

[Joachim Gunell, Junior Analyst]

Yes.

[Staffan Dahlstrom, Co]

I think what a lot of Anybus' customers, these are device makers, device manufacturers. I think this is quite classical. We see a lot of business inside traditional industries, automotive, manufacturing and chemical process. I think this is a classical industrial automation that is really strong and -- including strong robotics and these kind of things. So this is the classical market for us that -- where our existing Design-Wins are performing better than ever. So they see a lot of investments in everything, from increased automation to sustainability to energy savings. So there's a lot of things that support our customers in their ambitions to invest in these technologies.

[Joachim Gunell, Junior Analyst]

Understood. And with regards to your comments on Design-Win activity, it seems as if I look at your graphics here that, call it, the percentage of terminations is -- well, it's slightly higher in 2021 than we have seen historically. And any comments on what's driving that?

[Staffan Dahlstrom, Co]

Yes. As I mentioned, I think this is -- from the time we win a new Design-Win and go into production, then we have something between 8, 10 or even 15 years of volumes with this. Normally, we see a quite big ramp-up in the first couple of years, then a stable development, then a decline over the last maybe 3, 4, 5 years of life cycle of this Design-Win.Here, we see that most of the termination is on these Design-Wins with -- that is end of the cycle because our customers, they would like to prioritize their components. And normally, it's easy for them to kill some old products than some new products with a lot of steam in the revenue. So I think this is what we see here, which means these are not the most attractive and the cash-generating Design-Wins. It's more of this older, with less -- yes, with less potential, I would say.

[Joachim Gunell, Junior Analyst]

Understood. And coming back to -- I think you helped paint the picture quite granularly, Joakim. But I mean, with regards to -- how do you get comfortable that order, call it, conversion into 2022, given the supply chain situation and the inventory buildups will work as it has [indiscernible].

[Joakim Nideborn, Chief Financial Officer]

So I'm not sure if I fully got the question. Joachim, can you just repeat exactly what I was referring to?

[Joachim Gunell, Junior Analyst]

Yes. So what makes you comfortable that we shouldn't see any, call it, cancellations in the order book and that the orders that you have reported will actually convert to sales as we move along into this year, given the challenges within the marketplace currently?

[Joakim Nideborn, Chief Financial Officer]

So I think -- yes, first of all, I think the demand is very strong out there. Our customers want to have the deliveries. So that gives us a lot of comfort that they're chasing us to get deliveries. And then we don't allow cancellations. There might be some changes in terms of timing that they might need to push out some orders if that's the case and that could maybe be discussed, but we don't really allow cancellations. So I think we're quite confident that this will materialize. I think the biggest challenge that we have, as you probably noticed, is to get the components so we can deliver as fast as possible. And that's where we're going to have the big challenge with throughout the year to really get those components in.

[Joachim Gunell, Junior Analyst]

That's fine. And just a more broader picture in terms of -- what are you seeing in terms of reassuring of supply chain, et cetera, as a driver for this quite elevated demand boom within factory automation and your end markets?

[Staffan Dahlstrom, Co]

I would say this is a trend that started a couple of years ago. And of course, with the situation we have, especially in China, this is escalating. We hear a lot from European customers that new investments in manufacturing capacity is done closer to their end markets. So if they have a lot of customers in China, they will invest in China. If they have a lot of customers in Europe, they will invest in Europe, primarily eastern part of Europe. In U.S., we hear a lot of investment in Mexico. So I think people will probably maintain what they have in the current setup. But for new investments, they are much more reassuring and using these strategies. I think we see this, and I think this also drives new investments in automation in new locations.

[Operator]

Our next question comes from Viktor Högberg with Danske Bank.

[Viktor Högberg, Analyst]

So on the OpEx side, just checking that the SEK 20 million nonrecurring charges in Q4 was isolated to Q4. Do you expect some effect also in Q1 with the initiatives you mentioned?

[Joakim Nideborn, Chief Financial Officer]

No, not from those. Those SEK 20 million is one-offs for Q4, that's not going to come back in Q1.

[Viktor Högberg, Analyst]

Okay. Great. And your comments on the delivery capacity and the deliveries you were able to do in Q4, which seems to have been temporarily a bit better than what you expected. Did we -- did I understand you correctly that the Q4 sales level recognized revenues very hard to meet in Q1 and potentially in Q2 given the sourcing level you're seeing right now?

[Joakim Nideborn, Chief Financial Officer]

Yes. You understood that perfectly right.

[Staffan Dahlstrom, Co]

And I think also just to paint that picture a bit more. What we did in Q4, we were super happy that we got more out than we expected, but this also shows the volatility that it's really difficult to estimate this. So who knows for Q1 and Q2, it's a little bit of luck and timing where we are able to get in these components. But we see it's difficult to predict the timing of the deliveries. We are very sure that we will be able to deliver these orders, but the timing is not clear at the moment.

[Viktor Högberg, Analyst]

Full respect for that. But what about the timing in the quarter? Was it late in Q4 where you solved these challenges in December? Or was it gradually throughout?

[Joakim Nideborn, Chief Financial Officer]

I think we saw -- we had a bit of a solution coming mid-November. So end of November and throughout December was extremely strong.

[Viktor Högberg, Analyst]

Okay. And as you mentioned and continue to mention, the demand out there seems to be strong. Do you expect that to continue as well into the next couple of quarters? But we've seen some customers ordering SEK 0.5 billion of the order intake in Q -- or in 2021, advanced ordering. So when do you think that might fade off if you see that? When is that going to catch up to you? Or do you see a change in the market? And this is coming back to the CMD you had 1.5 years ago, when you changed your targets implying 8% to 10% organic growth or something like that. Have you seen anything changing structurally in the market that would change that long-term picture? Or if you could help us elaborate a bit on the longer-term effects of what we're seeing right now.

[Staffan Dahlstrom, Co]

I think it's -- I think what we see right now is a much stronger market than we saw back a year ago. And this is -- of course, there's -- we talked about this boost effect. But I think the reason that customers also want to place orders in longer term is that they are very confident in their own business. So you see a very strong market and good confidence with our customers. So I think the market is stronger.To answer when will this boosting effect fade away, we've been waiting for that to happen. But so far, it's the opposite way and it continues, so we don't know. But you're right, this cannot continue forever. It need to be into balancing out in some way.But I think also when we talk to customers, many customer segments were using just-in-time delivery for the last 20 years. I think it will take a long time before many of our customers goes back into that setup again because they lost a lot of delivery capacity during these component shortages.So I think we will see some kind of adjustment to more normal, but that adjustment will take longer time, I think, because people are a bit concerned about having low inventory and relying on just in time. And I think this will stay with them for quite some time.

[Viktor Högberg, Analyst]

Okay. And speaking of inventory and deliveries, so Ewon took a big step-up in Q4. It sounds like was due to you being able to source the materials and the components you needed. Was that the main driver, more of a catch-up or anything on the demand side as well?

[Joakim Nideborn, Chief Financial Officer]

No, I think on the sales side, it was more of a catch-up. And if you look at the Q3 numbers, you see that Ewon was very low. So we had a lot of delivery issues in Q3. And that's what I was also referring to saying that mid of November, we had a bit of a solution in place that we can start to deliver out a lot of Ewons. So therefore, we had a very good end of the year. So I think you should maybe consider Q3 and Q4 together when you look at Ewon numbers to get a more fair representation.

[Operator]

[Operator Instructions] Our next question comes from Fredrik Stenkil with Nordea.

[Fredrik Stenkil, Research Analyst]

A very nice quarter. I was wondering if you could describe Connectitude a bit more, what the vision is, if you will, how it fits in with your existing offering and if maybe also how it relates to M&A ambitions. Will this be sort of your organic ambition into software? Or do you think you will require further M&A to get a good software position?

[Staffan Dahlstrom, Co]

Yes, let's talk a little bit about that. I mean we don't need to have too high gears on this minority investment. The reason we made this investment is that we see them as a nice software application on top of data that is coming from machines about how to do, on one hand, overall equipment efficiency calculations, but also over time also to handle helping customers with spare parts handling and things like this. So we see and we have a partnership with them since a couple of years where we use our Ewon products to connect to their software. And through the data we provide to them, they can sell their software. But it is a small Swedish company with great ideas and a great software that we are now taking. As a part of this investment, we also do a commercial agreement where we'll bring in some of their software functionality into our offer and offer this to our customers. And of course, we have 10,000 customers, and we see this as a way for us to also offer more value on top of the data. And for Connectitude, they see this as one sales tool to this machine builder market.But I think also this is a fairly small and innovative company. And I think that this investment is an example where HMS want to do this kind of minority investments to do strong partnerships, but we don't view it as an acquisition candidate where we would buy 100% because then this -- we are not there. So we see that a couple of these smaller minority investments will be done throughout the years, more for commercial reasons and collaboration reasons, not for consolidating a lot of revenue and other things. So I think this is just a collaboration investment, I would say.

[Fredrik Stenkil, Research Analyst]

Yes, that makes sense. And what about if you want to have your own software offering in-house, how would you go about that? Is it important?

[Staffan Dahlstrom, Co]

Yes. I think we acquired WEBfactory a couple of years ago, and we are partly successful with doing bundled solution with their software and our communication hardware. But we also realize that it's not trivial to sell software in our sales organization. It requires different skills. So I think also we learned that we need to redo a couple of things to be successful in also selling software on top of our product. So I think these acquisitions is ways for us to get more technology, but also a way to learn and how to adapt into a future where we believe that more of our revenue will come from software. But we need to make sure that we crack the code for how to be successful in the go-to-market there.

[Fredrik Stenkil, Research Analyst]

All right. Then a second question, also a bit bigger picture. But you mentioned a bit on the 5G deployment starting to happen more and more. Do you feel you have the full product offering to support that? I guess, overseas helps in some regards. Or would you need to add something on top to fully capture this demand?

[Staffan Dahlstrom, Co]

Good question. Right now, we have a couple of products. Quite -- I would say, we have a quite thin product portfolio, but very focused on solving these communication challenges we see there. I think it's too early to talk about the broadening offer. We need to be more successful on the deployment of the current technology and expand from that. I think with Owasys, they have good 3G and 4G connectivity. I think they look at us to provide them with 5G connectivity. So that's one example where we can help them with technology. But right now, I don't see that we have a broad product expansion within 5G. It's much more focused on being successful with what we have.

[Operator]

At this time, there are no further questions. So I hand back over to our speakers.

[Staffan Dahlstrom, Co]

All right. Thank you very much for attending this quarter 4, and thanks for sharing the same interest that we have in this company. We have a fantastic year 2021 behind us, but we are super excited about the future. And as you see on the order intake and the trends, we believe that we are on the right place and there's a couple of exciting quarters and years to come here. So we look forward to the coming calls together with you. So thank you for today, and have a good day. Bye-bye.