Earnings Call: Q1 2017

May 2, 2017

Good day, and welcome to the Q1 Report 2017 Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Roland. Please go ahead, sir. Thank you. Welcome to this Q1 interim report for the Hexagon Group. And I would like you to turn to Slide number 4, overview Q1 2017. Organic growth came in at 3% and recorded growth at 7%. So it's 1% better sequentially over the 4th quarter. And if we dissect this, we can see that virtually all businesses but PP and M, our oil and gas business, was improving its organic growth. Strong performance in Manufacturing Intelligence, Geosystems and especially in Positioning Intelligence. PP and M continued to face a challenging quarter due to weak demand from the oil and gas market, but actions have been taken to ensure future growth and increased profitability for the quarters to come. And excluding PPNM, organic growth for the group grew by 6%. We also saw improved profitability year on year in spite of the weak performance from the strong contributor, PP and M. Gross margin came in at 1% and EBIT margin won at 22.4%. If we move to Slide 5, it's really only to point out that the Q1 is the weakest quarter, and we believe that is the case in 2017 as well. Slide 6, the P and L statement. Net sales amounted to 7 100 and €78,100,000 and that is 7% recorded and 3% organic growth. If we look at operating earnings, EBIT1, we record SEK 174,500,000 and that is 9% growth over the corresponding quarter last year. Cash flow, Slide 7. It was a very positive surprise for us that the Q1 generated such a strong cash flow. Typically, Q1 is a weak quarter from a cash flow point of view. But as we can see, cash flow from operations before changes in working capital grew by 15% and after change in working capital by 29%. And operating cash flow after investments actually grow by 45%. Talking about working capital to sales, if we turn to Slide 8, we can see that the trend continued. And as I stated previously, we typically grow our our working capital in Q1. But in this quarter, we released working capital and continued to push it down as a relation to sales. The acquisition of MSC, Slide 10. We consolidated MSC at the end of April. Just to recap, MSC is a U. S.-based provider of computer aided engineering, I. E, simulation software in design processes. Roughly 1200 employees spread in 20 countries, strong presence in automotive, aerospace and electronics. And this is our 3rd largest acquisition so far in Hexagon, purchase price balance sheet before we reach our covenant of 3.5x. So we have more higher power going forward. Slide 11, accounting impacts in this quarter and going forward from the MSC acquisition. Impairment of overlapping technologies is charged to the P and L statement in the Q1 report, and they amount to 10.4 €1,000,000 They have no cash impact. Transaction costs for this acquisition amounts to €2,100,000 and they reported as NRI in the Q1 statement. Deferred revenue, that is something forward looking. That's something that's going to happen from now on until December of 20 17. And for those of you who followed us when we acquired Intergraph, you're well familiar with the revenue haircut principle. So we expect to charge €20,000,000 to €30,000,000 in reduced sales and profit over the remaining quarters of 2017. The cost savings program, Slide 13. We launched a companywide cost savings program with a focus to reduce administration costs. The program is affecting or has affected approximately 500 employees. It's expected to drive cash cost savings of approximately EUR 25,000,000 in 2017. And on a fully implemented level, the annual savings will run to the tune of €44,000,000 per annum as of 2018 when it's fully implemented. The cash flow impact of the program amounts to SEK 38,300,000, and that is going to be charged to the cash flow statement over the remaining quarters of this year. The cost is charged to the P and L statement in this quarter. Slide 14. If we now summarize the cost savings program and the MSP acquisition, and this is for you as a mental note when you do your predictions and forecasts for the remainder of this year. If we start with MSC, we charge 10,000,000 plus 2, I. E, euros 12,500,000 in Q1 as NRI, and that is the transaction cost and the overlapping technologies. If you look at the column Q2 through Q4, that's the CHF 20,000,000 to CHF 30,000,000 of revenue haircut that will negatively affect the group in the quarters to come this year of approximately €20,000,000 to €30,000,000 And then if we look at the Lion cost savings program, we charge €38,300,000 to the P and L statement in Q1. That will have a negative impact on the cash flow statement, but no negative impact going forward on the P and L statement for the remainder of the year. From the cash flow and from the P and L, we expect a positive impact this year of SEK 25,000,000 stemming from these savings. So the net impact for the year, cash flow and profit wise, would be minus SEK 13.3 billion. The annualized savings is SEK 44,000,000, as you can see in the column 2018. And I hope this has explained what you need to keep track of for the quarters to come. Now if we move on to market development, Slide 16, not too many changes. South America has grown to represent 3% of sales in the quarter. And we've also seen a recovery in the Middle East. Thus, EMEA, excluding Western Europe, is now at 7%. If we move to Slide 17, a quick overview of the regions and how they've recovery in both Middle East, Eastern Europe and South America Western Europe, stable growth China, stable growth and then decline in North America and Asia Pac, excluding China. Slide 18 is for your reference to compare to previous quarters moved and what has not moved. If we then move to Slide 19, EMEA market trend. EMEA grew by 7% organic growth in the quarter. It was our strongest region. And it was a broad based growth where both geospatial and industrial grew and industrial outgrew geospatial. The manufacturing sector did really well in Western Europe, and Western Europe records 7% organic growth. We saw basically all major markets, but really positive ones were Germany, France, Nordics and the U. K. The Middle East returned to growth following a few sequential quarters of negative development due to the weak oil related economy in the region. Russia is continuing to recover, but this quarter was nothing special, low single digit growth. Moving on to Americas, Slide 20. A bit more complicated scenario, North America contracted minus 2% organic growth. If we look at the box at the bottom right, we can see that Geospatial contracted by 1% and Industrial, 0%. Within these two business segments, we saw Mining and the imagery program in geospatial having negative growth in the quarter. Mining was related to the North American development. In South America. Mining was very positive. But the imagery program had a slow start of the year, and we expect to pick up as of the Q2. On the other hand, infrastructural business, I. E, construction related activities, drew very strongly in the quarter in North America. If we then move to the Industrial segment, PP and M had a weak quarter whilst Mi had a record strong quarter. So the manufacturing sector was doing really well in North America. If we then look at South America, we record 16% organic growth, and it's driven by some order wins that we will see later on in this presentation from countries in South America in the mining sector. Asia. China recorded 6% organic growth with solid demand across all industries. Australia bounced back, driven by infrastructure and construction. And then the poor development in the quarter in the region was really South Korea that saw double digit decline due to a weak shipyard and electronics market where increased competition in these two segments from Japan and China hampered growth for our products. Reporting segments. If we move to Slide 23, Industrial Enterprise Solutions. While the segment grew by 2%, within that segment, Mi grew by 8% organic growth. And we saw continuous strong demand in the electronics industry and good development in aerospace and automotive. Most regions grew for Mi. PPNM, on the other hand, contracted by 11% organic decline, and we saw reduced activities in the overall oil and gas market. We saw some positive development in the quarter, and we saw some signs of stabilization for PPNM. Slide 24, Geospatial Enterprise Solutions. The segment grew by 4% organic growth, and that is what Geosystems did as well. 4% growth for Geosystems with strong development in EMEA, Australia and infrastructure in North America, good growth in China, and this was offset by weak mining sector in North America. SEI -2%, good demand from public safety applications hampered by poor demand from U. S. Defense in the Q1. As we all know, we have a new administration in place in United States. And there is a bit hesitation on what budgets that are still valid and so forth among our customer base. On the other hand, positioning performance in the quarter would talk against that, 22% organic growth driven by both agriculture and defense. And defense in this case is the launch of our new product gadget on vehicles in the NATO armed vehicle. If we move to Slide 25, we have a good underlying trend in the gross margin. We've been at 60% for a number of quarters now. What's happening within the business is that PP and M with a very, very high gross margin is declining whilst the other businesses are improving. And the same comment goes for the EBIT margin, the operating margin on Slide 26. We see a broad based growth from most businesses but for our oil and gas business in the quarter. Orders and product releases. Slide 28, Helping BMW's largest plant keep up with the growing demand. BMW's largest plant in the world is located in Spartanburg, South Carolina. And they've invested in Hexagon's laser tracker technology. And they continue to add and invest in conjunction with the expansion that they see for both local and international markets. Slide 29. UTC Aerospace supplies gears for the aerospace market. And they've taken a decision to invest in light, CERIO XI, Coordinate Measuring System Technologies. And if we turn to Slide 30, we received several orders from the mining sector, and we could see a turnaround in this segment. We had orders from Mexico, from Burkina Faso, Pakistan and Argentina in the quarter. So very strong and good quarter for the mining business overall. Slide 31. We got several interesting orders from South America and India in the quarter. We are engaged in a tunnel project that will connect the city center of Buenos Aires to the western parts of the metropolitan area. We saw a project in Peru where an open pit mine is using our technologies to control points and monitor processes. RSED Mining has invested in laser scanning to serve a project in Chile. And then we have a huge project in India where they're going to cover 5,000 kilometers of road and road expansion. Slide 32, this is a first order for us where an industrial site has decided to install our command and control solutions for safety and security. And it's Audi's largest production facility in Ingolstadt in Germany with more than 45,000 employees that have decided to invest in this system. Slide 33. We're beginning to see a bit of movement in the marine industry for positioning of large ships and floating structures. We've signed 2 contracts, 1 with Subsea 7, that is a world leading seabed to surface engineering company and then Shearwater, which is the provider of marine seismic data acquisition. And they both invested in our GNSS positioning technologies and subscription services in the quarter. Slide 34. We received several orders in the Asia Pacific for PPNM, Curie Halland Company of Japan, CTCI of Taiwan and China, Chengdha and CNOOC, all invested in small plant in the quarter. Slide 35. This is an interesting infrastructure project where we support the buildup of GNS as reference network in Uzbekistan. And this is to acquire centimeter level accuracy across that country, and this is going to be the backbone of the future cadastre of Uzbekistan. Slide 36, we launched a new product, Moab Inspect XR8, which is a camera based portable coordinate measuring machine for highly precise shop floor application. Slide 37. We acquired a company called Sigma Space in 2016. From that technology that we derived from Sigma Space, we have now launched like SPL100, which is the 1st commercial single photon LiDAR technology. And this is a bit of a small revolution where we can capture high density point clouds up to 10x more efficiently than before. We can generate 6,000,000 points per second. And this means that if you want to cover states in a large country or even countrywide project, we can acquire data at the lowest cost per square kilometer or data point. And this technology is also going to be used in the newly launched hexagon elevation program where we combine our imagery with 3 d data on the topography of any country. Dividend. Just to remind you, we have our AGM later today, and the board will propose a dividend of EUR 48 which is an increase of 12% over 2016. And I think that leads us to the summary slide, Slide 41, growth driven by strong development in Manufacturing Intelligence, Geosystems and Positioning Intelligence. Our overall growth was pampered in the quarter by continuous weak demand from the oil and gas sector, strong profit development in all businesses apart from PP and M, and we signed an agreement to acquire MSC Software in the quarter. We closed that deal on the 26th April, and we also launched a company wide cost savings program to reduce admin costs. And with that, operator, we are open to answer any questions we might be able to answer. Thank you, We're now going to take our first question from Stacy Palla from JPMorgan. Please go ahead. Your line is open. Hi, thank you. A few questions for me. First of all, looking at PPNM, just a quick one, what portion is also getting a little tougher in Q2? And finally, the Audi project, the Audi Si deal is quite interesting. Is that a new opportunity for you on the industrial side? Right. You overwhelm me in a positive way. Let's take PP and M. The structure of the business as such hasn't really changed. 50% of the business is oil and gas. The remainder is other applications. And within those 50%, lion's share is onshore, and we're much smaller on the offshore application. Regarding PP and M, it's fair to say that what we can determine is we know that our cost structure is going down in the quarters to come. So, of course, we can say more we can state that we believe that the profitability is going to go up given those cost cuts. We also hope that this is the bottom in the cycle. And activities launched, restructuring the sales force structure, what we focus on, regional implementations and the fact that we have a good pipeline for the new product ecosystem outside of United States. Would point that between now year end, we should see a better development on the top line as well for PP and M. Then if it comes to MI, MI is doing everything right at the moment. It's a fantastic development. Whether we can maintain 8% throughout the year or if it's going to slow down a bit, It's too early to say, but we have a good pipeline. We had an even stronger order intake in the quarter. So it actually looks quite good. And I agree with you that the Audi project might be a new expansion area for us. And if we combine those kind of applications with the type of robotics that we showcased at Hexagon Live last year, we have a clear vision for a very interesting business idea. Great. That's useful. Thank you. Thanks. We're now taking our next question from Adam Wood from Morgan Stanley. Please go ahead. Your line is open. Hi. Thanks very much for taking the question. Also a few from me. Just maybe following up on the PPNM side. We've seen the oil services companies recover, so that would seem to kind of confirm what you're saying and seeing a bottom. I'm just wondering from the design side, how much slack do you see on utilization of those oil services companies? So I imagine through the downturn, they've not cut exactly in line with our CapEx budgets and they prefer to keep hold of some of these seats and run them at lower utilization. How long would you see that kind of needing to flow through the system that utilization picks up and then they come back to actually make good on those orders that they've got in your pipeline? And with that in mind, do you think then the PPN could grow for this year? Or should we be more cautious than that? Secondly, could you give us on the capitalization side, so the intangible CapEx went up a little bit. Was there a big net benefit versus the amortization in the P and L? And then finally, could you give us an update on Smart Cities that looked very strong in the quarter? Remember in the past, you've talked about good initial orders, but some of the technology you're selling in would be reused. Where are we on that? Are we moving on to further projects? And as we get on to those new projects, how much is reused versus additional orders for you? God, you're addressing all questions today, but I'm going to do my very best. The design slack in PP and M is very hard to predict. We definitely believe we're at the bottom, and we do see signs of recovery in the oil sector. And we have several touch points within Hexagon where we can follow the sequential development. For example, we see offshore oil rigs, the so called rig count, growing again for the first time in 3 years. So we see mothballed oil rigs now being commissioned and taken into operation again, and that is often the first sign of a recovery. The second question, the capitalization and amortization. The percentage of R and D spend, it actually shrunk in the quarter compared to the same quarter last year. And then we move on. So the benefit is roughly the same or slightly smaller. If we then move on to, I think, your third question was smart cities. Exactly. Yes. We it's absolutely true. We had a good quarter, but we do see a lot of projects coming on stream. So we hope this could be a good year for our Smart City development project in collaboration with Goa Wei. Excellent. Thank you very much. Thank you. We're now taking our next question from Mohammed Murali from Goldman Sachs. Please go ahead. Your line is open. Great. Thank you. Ola, I just had two questions. Firstly, in terms of the operating profit, despite the softness in PPNM, you came in with a pretty healthy EBIT performance. Can you kind of help us understand the were there mix shifts in some of the other divisions to kind of help offset that? Or were there any other kind of synergies or cost savings from prior plans? And then secondly, as you look at sort of the different moving parts, particularly PPNM, We saw obviously a reacceleration in organic growth. Do you feel that this sort of rate of growth is likely manageable over the course of the rest of the year? Or could we still see a bit more volatility? And sort of is sort of the circa 3% a reasonable assumption for the year in terms of what you think you can deliver? Yes. I mean, all the other businesses from positioning, Mi, FI and Geosystems, they improved their mix. So we saw a much richer mix coming through those business units in the quarter, and they all helped to mitigate the decline in margin and profit, in absolute profit that we saw from our oil and gas business, PP and M. I didn't really understand your second question about PP and M. Maybe you could state it again? No, no, no. It was more on the organic growth for the group for the year, given, PP and M has been a little below plan. But you said you do expect some recovery in growth towards the end of the year. How should we think of overall group organic growth in that context? Should we stay at the sort of circa 3%? Or could it still be a little volatile? And how should we think of the shape of organic growth through the year? I think there are good hopes for an organic growth improvement at PP and M is improving itself. So I mean, if the all the other businesses remain where they are or they could even, in some areas, decelerate a little bit, but Okay. Thank you. Don't forget that it was 6% without PPNM. So there is definitely a much stronger underlying growth for the other businesses. Great. Thank you. Thanks. We are now taking our next question from Daniel Gilbert from Handelsbank. Please go ahead. Your line is open. Thank you very much. Congratulations to the report. First question, looking at North America, the private construction did well. Is this a sustainable trend, you think? And also if you look at public construction in North America or in U. S, is that should you expect a recovery in 2018 there? Or what do you see there? Also a question on if you look at Slide 18 again, the Automotive down a notch in growth in Western Europe and I think 2 notches in China. If you could say something about that and also aerospace in Asia ex China? Thanks. I'll start with aerospace in Asia except China because that's a fairly small business, and we don't expect that to do much upwards or downwards. But automotive as such, if we take the questions in the reverse order, we think this is going to be another solid automotive year. If you participated in our Capital Markets Day, you know that we expect volume growth from the auto industry to be around 2% between now 2020. But we believe the model and the new factory growth to run at the tune of 7% per annum. So we actually believe that our products are going to do better than the average automotive industry. Moving on to North America, we saw both the private and the public construction sector improving in the quarter. Whether that's the trend is yet too early to say. We've seen the private sector being strong, but it was a quarter where even public spending was growing and improving for us. That's great. I'll get back to the queue. Thanks. Thanks. We're now taking our next question from Erik Kornwein from Nordea. Please go ahead. Your line is open. Thank you. I have three questions. The first one, is it right to assume that PP and M isolated to an EBIT margin drop of around 7 to 8 percentage points year on year? 2nd question, you talked about increased competition from Japan and China. I believe it's related to Korea and Electronics. Could you elaborate a bit more about that? It's the first time I've heard you talk about it. And then thirdly, MSC pro form a sales start here of EUR 230,000,000. What's been their development so far this year? Do they see organic growth in the Q1? Thank you. Thank you. I guess the PP and M drop question is the absolute EBIT margin drop. Is that your question? Yes, correct. Yes. Yes, that is more or less correct, yes. Korea Electronics, it was one of the factors that made Korea shrink in the quarter. I would say the other major factor was shipbuilding and general industry. But it's true that we saw less orders. Electronics, overall, was very strong indeed this quarter, but it wasn't coming from Korea. It was coming from other countries. So I think that answers your question. And we saw growth, organic growth for MSC in Q1. Thank you. Thanks. We're now taking our next question from Michael Lassens from Carnegie. Please go ahead. Your line is open. Yes, thank you. I have a follow-up on MSC actually. Can you explain a bit more how that company is developing in terms of organic growth and the EBIT underlying EBIT margins and how we should look at it think about it ahead? And also if you can comment on the acquisition related amortization that you expect to have following this acquisition? The first two things. Yes. We're not going to give you specifics on 1 individual company within a business segment, but you can read about the sector. And computer aided engineering is expected to grow at around 5% per annum for the coming 5 years. And the profitability is in line with the sector as well. And these companies are usually delivering EBIT margins of between 25% 35%. So I think that's the most accurate answer I can give you. Okay. And the acquisition related side? It's a bit too early to say what the PPA impact will be. We were arm wrestling with our orders. But we consolidated on the 26th April, and we're now establishing the balance sheet, the incoming balance sheet for the MSC Group. But don't forget the haircut this year. That's going to be a negative, unfortunately. Okay. And can you also say something about how the €25,000,000 savings are affecting the 2 segments, Eustachian and industrial? Is it roughly the same or more in one segment? No, I think it's roughly the same. I mean, within the industrial PP and M, cut a bit harder than Mi. But on the other hand, in the geospatial, we also have restructuring both from Geosystems and SBI. So I would say probably you end up in a fifty-fifty distribution of the savings. Okay. Thanks. $22,000,000 run rate for well, per segment, roughly. We're now taking our next question from Daniel Schmidt from SEB. Please go ahead. Your line is open. Yes. Hello. Good afternoon. I think you said, Ulla, in connection with the Q4 report in terms of these savings that 50 percent of those might be reinvested into R and D and sales force. How should we model that? And do you have a better view of that now compared to 3 months ago? I think that you won't see a reinvestment this year, so that will not happen. And then I think we will gradually see an increase in sales and R and D as from 2018, and that should be offset by a similar or even greater increase in the gross profit. That's how I would model it. Yes. All right. Thank you. And then a completely different one. S and I was negative in the quarter, and I think that's the first time it's negative since you started reporting it separately, if I'm right. And you referred to U. S. Defense. And You had good visibility in this business and sort of a fairly sort of I don't know if it's a year or more than that. What should we expect? And what do you think of this business going forward in the coming sort of 9 months? I mean, what happened in the Q1, the only area is we have a fairly large business selling paid services to the U. S. Army. And there, we don't have much visibility. All other businesses within SI, we have good visibility. And in the Q1, customers simply didn't pay or ask for services in paid services, I. E, programming of already installed software systems and so on. They basically just cut their budgets and waited for new instructions. That's how we read it. I think going forward, this business could surprise. I'm not saying it's going to be a double digit growth machine, but I think we're going to see a gradual recovery simply because public safety is growing in the tune of 6%, 7% per annum, and that's a much larger business. So eventually, that is going to have an impact on the overall top line. Yes. Is it fair to say that the U. S. Defense exposure that you referred to, is that 20%, 25% of this business? Or is it less now? No, I would say it's a little less. 20% is probably more correct than 25%. But should we still expect that part of the business to be slow through the summer and then you sort of you think that the rest will more than neutralize that effect gradually throughout the year? It's very difficult to have a view on that simply because it's new decision makers coming in assessing what their predecessors did and then either saying he was not very clever or she was clever and then signing off on these contracts. These are short term contracts. But the good thing is they're not very profitable. So the profitability wasn't hurt for SI. All right. Good. Thank you, Ula. Thank you. We're now taking our next question from Oreste Frigcovy from RBC. Please go ahead. Your line is open. Hi. Just when we spoke just after Q4, I think you mentioned that one of the reasons PPM organic sales was perhaps not where we expected was that there were some ECOSYS orders that slipped into the first half of twenty seventeen. Can you just let us know what's kind of happened with those? Have you seen those now? Or are they still being delayed and pushed out further? We got a few of them, but we didn't get as many as we hoped for. So one of the actions we've taken in the quarter is to restructure the sales force and the go to market strategy for the Ecosys segment within PPNM. Right. Okay. And then just to clarify one of your comments earlier, just on the Korea, when you talk about increased competition, that's for your from Japan and China, that's for your customers, not for you. Is that right? Yes. We don't make ship. Yes. Great. That's it for me. Thanks. Thank you. We're now taking our next question from Daniel Thorberg from Handelsbank. Please go ahead. Your line is open. Thank you very much. A follow-up on MSC, if you could start with the R and D road map in terms of integration with all the simulations, the other projects also about the solution focused sales, any lesson learned about the progress and so forth? And also if you have any NRIs there that will be I. E. Double cost during this transformation? If we start with MSC, the target is to connect it to our metrology business. So it's an integration with our software PCBs that we're looking at for the future. And that's going to be where the touch points are going to be. We already have a few computer aided engineering software businesses inside Hexagon, and that's, of course, going to be an immediate integration to look at those. We also have a quality inspection software called QDAS, and we believe that CUDAAS have a lot of touch points with the MSD product offering as well. At the end of the day, what we want to use is we want to use all the data that you capture by using metrology in a production line and then feeding that data into the computer aided engineering software so that design engineers can take cleverer, smarter and cheaper decisions for the future. So that's the integration plan for MSC. Then your second question was about solutions. And I can you No, no, more about your transformation of your sales moving towards more Solutions sales focus in the E account budget and where you are in that process and if working according to plan? The plan is to transform take another iteration of Hexagon over the next coming 5 years. So every quarter, we take small baby steps to shape that sales force and change it gradually. But it's no revolution. It's not going to be done overnight. So we're not going to have NRI post just because of that. That's great. Have a great day, John. Thank you. We're now taking our next question from Leif Vanstrom from Expearson. Please go ahead. Your line is open. Yes. Hello. I have a question about your future. And will you remain as CEO during the trial in Norway? Yes. That's the intention. Your intention, can you explain it a little bit more? Well, it's not up to me to remain CEO. It's actually up to the Board of Directors, and that's a question you should ask them. But you have no signal about that there'll be any change in their attitude against your position? No. We had a board meeting earlier today, and I wasn't fired then. So I guess I'm still here. All right. And thank you. Thank you. We're now taking our next question from Matthias Svensson from Kiel Capital. Hi, Ula. I have a couple of questions on PPNM. And the first one is that you've stated in the annual report that recurring revenue is 70%. And now you're reporting organic declines of 11%. And going into Q2, it's likely to be a 2 year decline organically more than that. So is it nonrecurring that is or nonrecurring revenues that is turning nonrecurring? Or is it only the other revenues that are declining? And the second question is that in the Q2 2016 conference call, you stated a couple of things regarding your expectations for PPNM and that you expected it to turn in the Q4 of 2016 and now it's declining 11% in the quarter. What gives you confidence that you will be more right this time around? The 70% recurring, you could say if 2 things happen, you have 30% perpetual license and services, and that has, of course, been hurt much more than the recurring revenue stream. But what happens with recurring revenue is that you renegotiate every 3 years for something that's contract. And we've had contracts up for renegotiation where customers have negotiated down the number of seats they're going to use. And that's going to impact the recurring revenue as well. So just because you have a recurring revenue doesn't mean that it's carved in stone and you're always going to get that payment from a customer. Contracts typically run over 3 to 5 years. And then if we talk about the expectations, that's absolutely true. We were hoping for a turnaround in the Q4, and now we will see. We still think we're very close or at the bottom and that things should turn more positive in the next few quarters. But being CEO and giving predictions is not rocket science. There are so many moving parts out there that you might be wrong at times. Okay, great. Thank you. We're now taking our next question from Stacy Peller from JPMorgan. Please go ahead. Your line is open. Hi, thanks. Squeezing in a few extras. Just on the M and A, MSC was larger than you've done in a few years. Will you revert back to the smaller bolt ons now? Or would you also consider something transformational? And in both cases, what areas of technology would you be looking at? And then the very last one, Hexagon Live is in June. Is this a big product launch here or a medium product launch here? It's always a big product launch year. So that was an easy one. I think it's going to be exciting. So I urge you to come. Book that ticket now. Regarding M and A, that's always hard to say because it's all about the pricing of M and A Candidates. We have some big transformational companies that we constantly look at. And if the price was right for those assets, of course, we would want to do it. But I guess the safe bet is to say it's back to normal, the string of smaller acquisitions for the remainder of the year. So technology wise, any certain areas that you're interested in or you think are hot or that you need supplementing across your particular portfolio? It's 3 areas we're focusing on now, and it's connectivity, it's visualization and artificial intelligence. Okay, thanks. Thanks. It appears there are no further questions at this time. So, I would like to turn the conference back to you for any additional or closing remarks. Thank you very well, everyone, for listening. And I don't have any more remarks. So talk to you next quarter. Thank you, everyone. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.