HMS Networks AB (publ)

thank you and good morning everybody thanks for joining this call and welcome to at least here in sunny halmstad at the southwest beach of sweden we have a beautiful morning i hope you have it as well so i will start with a couple of slides updating us on the business and then joaquin will take the second part with more details into the financial numbers so we're following the standard procedures as we normally do but let's move directly into the quarter two numbers and we are happy to present another good and solid quarter uh actually on net sales a little bit better than we expected ourselves because we saw good delivery deliveries out in the end of the quarter in june because we got some a little bit better components than we um thought from beginning so i think we uh will land a q2 that was good and better than we expected due to component availability plus 27 percent growth but of course we also have support from a favorable currency mix with the depreciation of the Swedish crowns we continue to see a very good order intake as you know for the last I think six quarters we talked also about a boost effect where we see that our customers are concerned about long lead times component availability so they also tend to place their orders in ahead of time from their normal behavior so this is giving us a continued boost somewhat lower than the previous quarter but still significant for us joaquin will dive more into these details but uh 35 growth is of course very good for us we continue continue to deliver good results 143 swedish on ebit a combination of uh slightly improved quarter by quarter on margins, stable OPEX, well stable, we are increasing OPEX quite much, but of course with net sales growth of 27% and fairly stable gross margins, we're also leaving room for some good profitability. I think what is maybe the weak point of the report is our cash flow that is lower than normal and this joaquin will go into the details but in general one big effect is that we are building up more inventory we have a fantastic order book so we want to make sure we can deliver this we are seeing some easing on the component market so we're trying to get quite much inventory in here but as you know many of our products maybe consists of 100 different components. If we have 99 of them in inventory, it doesn't really help. We need 100 in inventory. So this is also giving some build-up of inventory and planning challenges. I think you've already seen Quarter 1, so I skipped the year-to-date numbers. It's very solid, and Quarter 1 and Quarter 2 follow the same lines. Let's take a moment just to look at this boilerplate for our business. HMS is hardware meets software. We make communication products where we allow our customers to interconnect machines on the factory floor to communicate with each other, also communicate between machines and devices up to IT systems wirelessly or wired. You see on the products, it's a combination of hardware products, but of course, a lot of software content inside these products. The four main brands, Anybus, E1, Intesys, Nixot, is doing different, solves different problems for our customers. And the three was recently acquired business, last couple of years, WebFactory, Percentage, Ovasys, is more completing our offers in some verticals. We work with two different customer groups. We have the makers of industrial equipment and we have the users. The makers are companies like Atlas, Copco or Bosch and these companies that use our technology building into their machines or their devices and then deliver that as part of their package. The users are normally larger and users could be Volkswagen, BASF and these kind of companies that use automation technologies to integrate different systems in their facilities. And if you look on the go to market on the left side with the makers, we have two major businesses. We work with device manufacturers, but we sell our embedded technology into their applications. So we are part of their designs. This is today 43% of our revenues. Here we make a design win and we have a very strong portfolio of design wins, which makes us successful when customers sell a lot of products. So right now we have a lot of customers with Good tailwind, and this is also seen in our orders. But here we work with direct sales. We have salespeople, well, direct salespeople that are subsidiaries now in 17 countries focusing on these device manufacturers. We also have makers of machines. We call them machine builders. This is 35% revenue. Our ambition here is that our technologies, our products should be part of their bill of material when they build all their machines. In most cases, we are more an option. So if a machine is sold and this buyer of this machine wants, for example, remote access or want to interconnect this machine to the previous machine or the other machine in line here, we are then specified to be an option to solve this problem. Here we work with a combination of direct sales to large customers and distribution sales. And again here, this is also driven out of the machine builders selling more machines so this is also related to investments and capex investments at machine builders customers and the smallest part of our business is end users system integrators this is 22 percent of our revenue but also growing and quite interesting within this with acquisition of proseltech where we do more and more business here it's either project sales where our system integrators are working with a larger project where you work with the end user who build a new factory or refurbish an existing factory, make some integration or improvements. And there we work with the participations in this project and help the system integrators. But we also work with, we call it product sales, where we advertise our product. We talk about its greatness and the specifications and simply we get customers who just want to buy it because it fits their specification. And this is done either through traditional distributors but to a larger and growing extent also new e-commerce distributors that focus on e-commerce for factory automation and building automation. We are in the almost middle of our five-year plan here, and we have the humble vision of becoming the world's greatest industrial ICT company, where ICT is information and communication technology. and we're taking steps in that direction we're following our mission by enabling valuable data and insights allowing our customers to increase their productivity and their sustainability so this is really important for customers and we have a lot of strategic discussions with our large customers about productivity and sustainability for 2025 our goals are Three of them are environmental, to become net positive in our CO2 emissions, where we do good steps in that direction. We believe that happy and high performing employees generate loyal customers. So we focus a lot on having good net promoter scores for employees and also customers. We see good results there. And financially, we believe that we would like to continue doing and combine this with a good profitability. So our ambition for 2025 is to have a revenue greater than 5 billion Swedish crowns and maintain an EBIT margin of 20%. No changes there. If we jump into some business updates before the numbers, I want to show two slides here. First, from a market point of view, all markets are growing. We see actually quite stable and strong business despite difficult macro situation. COVID in China, lockdowns, war in Ukraine, logistics problems and component situations. But underneath there, we also see good support from mega trends, increased automation, partly also the trend that more and more customers are reconsidering manufacturing in Asia, moving production closer to the European markets or American markets. We see a lot of new investments in Eastern Europe and Mexico for building new production capacity. But this is a market where labor costs may be higher than on some Asian markets. This means that people also invest, our customers invest more in automation, more in digitalization. But we also see good support from trends such as energy monitoring, remote access of machine is a very hot topic here post-COVID, when more and more customers want to have remote access to their machines because availability of machines has been a challenge. but also sustainability and green energy is becoming a factor for many of our customers. We talked about the component shortage. It continues. I already mentioned that the customers continue to place orders earlier than normal. We estimate a boost effect of 150 million Swedish in the second quarter, slightly smaller than quarter one, but still substantial. we feel we have improvement on the sourcing during the quarter but it's not going from good to bad it's going from sorry it's not going from bad to good it's going from bad to less bad i would say we still have a lot of challenges and this will continue for some quarters we believe but there are some still there are some lights in the tunnel we think that from acquisitions point of view as we reported in quarter one report we acquired the remaining uh shares of prosentec in April and we now are busy with the integration, especially in Asia and North America, where we see good opportunities. We also announced that we acquired our long-term main distributor in Australia, Global M2M. It's a small business, it's a four-man operation, 20 million Swedish in revenue, and they were spending 90% of their revenue was really reselling our products. It's a good fit. The reason we do this is that we believe that this part of the The world is interesting for us. We are under-penetrated there, and we see Australia, New Zealand, and Australia as a growth market for long-term. So this is interesting, and with this acquisition, we quickly get a bridgehead to expand in this part of the world. We'll also be busy with R&D. We're now presenting and releasing our next-generation product for remote access, the E1 COSI+, where we have a lot of new functionality for cybersecurity. which is a hot topic with many customers that they want to secure the assets. And here we have a world leading solution, not only for remote access, but also remote access where we use the latest technology for encryption and other security features. At Procentec, we also released our new AI-based software, Snap Analytics, where we use this tool to help our customers to improve their network uptime in a new way. Very exciting product. And we talked about our slightly bad cash flow. This is based on component inventory build up. We see that this impact our cash flow, but we believe it's the right strategy to build more inventory. We have a fantastic order book of 1.4 billion. So we want to just be prepared for keep on delivering this for the coming quarters. So we feel that this strategy is the right one. All right, Joakim.

Financial results. Yes, thank you, Stefan. So let's start as we normally do with talking about the order intake. I think Stefan has already done a good job explaining the boost effect and that we reached this 850 million. So we believe that we're quite satisfied with that result and the market is still strong all over across the brands and across the regions. That's good to see. We're now meeting for every quarter, we're meeting tougher and tougher comps and also the comps are inflated with this boosted order effect. Just to elaborate a bit more on that, so the 150 million on the boost side that we see in Q2 is 100 million less than we had in Q1, and we see that this is declining throughout the quarter. So we expect that to continue and that this boost effect will probably wear off during the second half of the year, meaning that the comps will become more challenging to face then. uh in terms of i also wanted to comment on on the fx side since we have a major impact much larger than we normally see so the growth of of this 35 percent in the quarter we have 14 percent out of that from from the fx side until 35 million that is building up on the fx side uh 50 out of those comes from revaluation of the the already existing order book so As you know, we will look at the closing ethics rate and the closing order book, which is determining the order intake in a sense. And the fact that the Swedish crown, with everything going on in the macro environment, nobody seems to be wanting to hold Swedish crowns. And that is, of course, very good for us in this case here. And as you, I think I've said it before, we have about 60% of our sales in euros, 25% of our sales in US dollars. So obviously, this is giving us a good help when the macro situation is as it is today. and still a good book to build once at 1.36 in Q2. Something that we believe will come down closer to one throughout the rest of the year with hopefully continued slowly improvements on the sales side and then this boost effect wearing off. Just try to give you a view on basically the underlying demand. We have this graph that we've been working on for a couple of quarters. What I did this time was also adding in this FX revaluation on top of the boost effect to show you that this effect is of course there in all quarters. It's normally quite small, but since it was so big this quarter, I wanted to show it clearly. So basically what we're saying is that the underlying market, the underlying demand is slightly better than Q1. As we said in Q1, we felt that we definitely saw sort of a tick up from these levels around 500 million that we had throughout 2021. And now we're more around the 600 million. So small improvement since Q1, still solid market, but maybe not as fantastic as it looks when you have a look at these 815 million. Okay, let's go over to the sales side. And Staffan already commented, we were better than we expected. I think I said in the Q1 call that we found it difficult to be more than 10% better than Q1. And we had a fantastic June where we got in some components that we didn't expect and managed to get out a nice chunk of the backlog. And so close in the quarter, 601 million, meaning 27% growth or 17% organic growth. Also year to date, I think we have a strong stock with 20% growth at which 11% is organic. And I think it's quite unusual. We posted record quarter for all our brands, which I think also shows that the market is strong on a wide level since we have some different types of customers and also some different types of channels for different brands. That's quite good to see. I think Staffan has already been talking about component availability and maybe has to comment on that briefly. We think that we'll have this gradual improvement, but there will be bumps on the road. We see already now that the visibility is not great. And just going on what we can see, we can't say that we're going to have a super Q3, but we hope that we'll solve some things on the way as we did in Q2. okay let's um let's continue looking at the backlog and um here we have a build up of about 200 million more so 1.4 in backlog obviously quite good and um we're not sure that we're going to continue to build this given that we we see this booster page wearing off also on the right hand side you see this graph with orders for delivery longer out in time than a quarter and i guess what we can say is that this is stabilizing you see that it was trending up a lot throughout 2021 And now it seems to be stabilizing. And I think that tells us two things. One is that our delivery performance is getting a bit better in the customer's eyes. And I think also that the customers are becoming done with building up their safety stock. They are on the levels that they want to be at for the most part. And I think this works together to keep this rather stable. Sales per region, we normally have about 60% in Europe and 20% in the U.S. and 20% in APEC, and it's about the same situation, so no big changes. It fluctuates a little bit throughout the quarters, but as I said before, all in all, all the regions are performing well. We see all-time high numbers in all regions, maybe not in the Americas since we had a very good quarter a few quarters ago there, but it's solid across. Then maybe let's talk about the profitability, which is maybe the most tricky part this time to explain. And again, record result, 143 million, 23.7% margin. Of course, always nice to see. The gross margin is a tricky number to understand. We're quite happy with the results reaching 62.2%. and seeing the continued improvement since Q3 last year, when we started to see the main impact from cost-increase components. We still have a huge cost-inflation component side, I think Q2 is the worst hit quarter of all the quarks we've seen. But now we're starting to see results in the price increases. So we've been discussing this before, that we made some price increases first at year end and then also end of Q2, sorry, Q1. And that is really starting to give results now and as we expected to see. But you also want to see the results from those measures. and and we also get some help from from the fact that the swedish crown is is weak and and it will have some volume that is helping the utilization on the on the manufacturing overhead costs so all in all i think that that improvement is is helping and as we said before we think this is going to continue to trend trend upwards and we're going to going to reach the 63 plus percent that we're pretty convinced with the measures that we've taken On the OPEX side, we've been continuing to invest, and maybe the numbers look high with 21% organic growth of OPEX. But you should also remember that during 2021, we were very thin on marketing sales activities. It was still tough with the COVID situation. So I think we've been working to strengthen the sales finishes and to build up better teams, stronger teams that can focus also on some verticals. So that's been working out quite well. And then we're now doing pairs and trade shows and various customer events again. And it's good to see the activities picking up. I think we need it for the lead generation to be competitive going forward as well. And then, of course, as everyone else, we also see a bit of salary inflation, especially in the U.S. and in some parts in Europe. We're just getting to very high single-digit numbers. And this is, of course, also impacting the cost side. So earnings per share, I'm not going to spend too much time on this. 2.33 Swedish crowns. Good. We had the adjustment in Q1. Otherwise, this would also be a record EPS. Not too much standing out there. So let's just continue to maybe the more interesting part with the cash flow. And you see this graph is, of course, not how you want to see it developed. We knew, and I think we also commented on this in the Q1 call, that we were going to continue to build inventory. And now when we see some releases on the component side, we definitely do not want to miss out since we do not have the simple components as is available or that something would happen there. So we're taking the hit and building this up with 50 million in the quarter. And then given the very strong end of the quarter, super strong June, this builds receivables quite a bit. So I think this is something that we're off when sales normalizes out. But right now it's building up a bit and that also impacts with 60 million. All in all, we believe that We're okay on the working capital side, even if it's a bit higher than what we've seen before. We don't expect this high build-up to continue. There might be a little bit on the inventory side, difficult to know exactly the timing. But I think all in all, it's under control. And year-to-date, you have roughly the same numbers with the receivables. But the inventory side, we have built 80 million from year-end. So that's quite a bit. But as we said, we think it's for a good cause, and we want to make sure that we can deliver during the second half. So finally, looking at the debt situation, starting to look maybe a bit more normal, given that we had this acquisition of the 30 extra percent of Procentec. We removed some of this option-related debt, and now it's normal interest-bearing debt instead. And I think 0.69 in net debt to EBITDA Of course, we're very happy with that level, not a big problem. And we still think we have plenty of room to continue with the M&A agenda, looking for interesting companies. And we have some firepower to do what we need there. I think that was basically it from us. And let's see if there are any questions. So I hand over to operator.

Thank you very much. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you can do so by pressing star and then two. At this time, we will just pause momentarily to assemble the roster of questioners. Thank you. Your first question comes from Joachim Gunell from D&B Markets. Please go ahead.

Thank you very much. Good morning, Stephanie Joachim. So, as the delivery capability clearly came in ahead of your expectations during the massive part of the quarter, can you just shed your thoughts here with regards to how you animated? Did you see that as more of a one-off and continue to expect gradual improvements throughout 2023-2024, as opposed to extrapolate what we saw here in June?

Joachim, can I have a good answer for that? Yeah, I think I have one.

Yeah, I can answer that. I think that what they said, Joakim, is that we believe that on the big level overall, we see that there is a slow improvement on the component availability side. We see that the confirmations that we get tend to stick. So before, we saw a lot of reconfirmation of orders, which made planning very difficult, and it was very difficult to see what's going to happen in the coming quarter or so. Now we see that we have better performance there from the suppliers. still there are various things that makes it difficult. And now you had the COVID shutdown in China, which is still somewhat impacting here and there. And so basically what we can say is that we believe that it's gonna become better over the coming quarters, but there will be some setbacks, we know that. There will also be some things that we solve. So it's difficult to say, I gave a range in the Q1 call that we could be plus minus 10% in Q2. So that's how difficult it is. That's a pretty big range. And I say maybe we're a bit more optimistic towards Q3, but we don't want to make a guess where that will end up at the moment. It's still too uncertain.

Understood. And perhaps some first thoughts on, I mean, we've seen how industrial automation and markets tend to have these two-year long up cycles. We are approximately 20 months into this. And given the fact that your products connect assets out in the field, are you seeing any sort of indication from, say, specific end markets that that business momentum is slowing or are showing any signs of what are called cyclical correction signs? And if not, perhaps you can help us just understand how you think about the trends you allude to, I guess, I mean, reshoring, energy monitoring, et cetera, how those sort of trends will basically dampen the cyclical amplitude of HMS business model activities.

I think first if we compare this to other setbacks we had in 2009 etc. I think today our business is much broader. We used to work only with device manufacturers. Now we have machine builders. We have also end users. I think we are more broad and this makes us more sustainable to different things. We also seem to be different in our building automation section versus industrial automation. I would say in general Business-wise, customers are still quite optimistic for different projects, but there's an uncertainty that is higher now. People are talking about, will it be a soft landing next year? How will it be? But they seem to keep on investing, and especially this with increased automation, increased digitalization is a hot topic because I see quick wins and quick profits out of it. taking these steps in industry 4.0 and these other trends so i think so far people are quite positive going forward and i think our position is fairly strong and we it's more broad-based than it used to be so i wouldn't say we are really worried but of course we we we are a bit careful on the new expansion investments of course but on the other hand we have good profit levels and we want to make sure we capture the opportunities we can as well so We are in a mixed mode at the moment.

Understood. And just a final one for me, in regards to the new product releases here, the Snap analysis product from ProSumtech, for instance, it seems like you're really starting to elaborate with more of like subscription services and network diagnostics, et cetera. Can you comment a bit on, okay, the GusNardium profile and that, I mean, what seems to be the base that you could tap into for such a product?

I think with this Procentec offer, it's all about helping customers. The ultimate goal is to have high network uptime, but they started that business and we acquired it a couple of years ago. with more being a troubleshooting tool when you have a natural failure we could then help them fix the problem find where it is and then fix the problem and that's still a portion where you need some hardware tools and some software tools but that market is also evolving too more and more customers are would like to invest in okay how can i make sure that i don't get these problems so we have some we talk about being reactive proactive and But we see with this SNAP tool, it's much more of understanding more about your network structure and the traffic you have and doing more of a predictive thing. So we see that that market is very interesting for the future, but it will also take time because a lot of customers are still in this reactive mode, how to solve things. And they're slowly moving in to be more proactive, but the predictive part is still in the early days. From a margin point of view, it's a software sales only. So that's good gross margins. But we believe that it will take some time before this is a large part of our revenue. But that's a big value for customers to really make sure that the network uptime is there. It costs a fortune for them when it's not.

Perfect. I'll get back to you. Have a great summer. Thank you.

Thank you. Your next question comes from Simon Grenath from ABG. Please go ahead.

Thank you, operator. Good morning, Staffan and Joakim, and congrats on a strong quarter. Initially, I'd like to just discuss a little bit on E1's performance here in the quarter. It was very, very solid results, and would you say that you saw any extraordinary impact on Q2 sales here from new product launches? And how should we think about this brand going forward?

Should I start Joachim? Well, I think what we've seen with the E1 in the results, we had a difficult component situation, especially related to E1. I think part of the good June result was also a surprisingly good output from our deliveries related to this product. The majority, almost everything there is our existing product offer. The new COSI Plus will help us. But I think this will continue this fantastic double-digit growth we have seen year over year over year. So I think this will continue to perform very well. So we see that we are expanding this business. We went from a situation a couple of years ago where this was a fairly new and a bit odd way of doing things. Now, after COVID, it seems to be a lot of more acceptance with customers because they couldn't get access to the installations. So remote access, what we do with Cozy and other Evo products, is today moving from being a nice option to almost a mandatory component when you deliver a machine. especially under the warranty time over this machine. What we're going to do here is also to make other services around this, to make it more sticky with the end users, to make sure that they don't only use it when the manufacturer has the warranty time of the machine. We also want to make it sticky over time. But the business model today is mainly, I would say, we sell the hardware and quite many of our customers keep on using the free version of the software. And we are seeing a better conversion to our pro version that you pay for, but we can still do more things there. So a lot of the success right now is based on a hardware, accelerated hardware unit sales rather than a better penetration with software. But this will continue and we see a very good market going forward for this.

Maybe if I can just add, Staffan, one thing that could be good to know, just looking at the numbers quarter by quarter, we had a really tough start of the year on the component side with E1. This is a business where we don't normally hold a very big backlog. So we had some backlog, and now we managed to get in some components in Q2, so we could push out some of the things that we didn't manage to deliver in Q1. So to look at it fairly, maybe 10% of the revenue in Q2 should have normally been in Q1 if everything was normal. That could be good to know.

Thank you, that's very clear, and thanks for a great answer. Furthermore, your order intake has been very strong after COVID, which I interpret as mainly stemmed from increased investments in automation to cope with increased cost, driving efficiency, etc. But another thing that has been a topic more recently is nearshoring. And my question is whether you are currently bearing any fruit from this effect, or would you say that that is further down the road?

I think a lot of customers talk about this, but it doesn't happen overnight. I think that maybe the strongest signal is that we see that European and American companies are not investing in new capacity in China. They mainly invest this in Mexico, Eastern Europe instead. This is really a clear nearshoring. But I think most of this is not done. Most of this is ahead of us. So I think the discussion is there, but it's, of course, starting building new factories, it's a multi-year process. So I think this will help us for the coming years. But the trend is there, it's clear.

Great, thanks. And I also find it interesting that you, Staffan, you mentioned earlier that compared with 2009, your offering now is so much broader and you're standing on firmer legs in light of that. And if we look at HMS, let's say a five-year horizon down the road, would you say that you want to continue broadening their offering? How many brands should we see on an approximation going for that horizon? Or how should we think about the breadth of your offering going forward?

I think we have a couple of sweet spots, as we say here. I think we continue to acquire companies that either bolt on to existing sweet spots or can create new sweet spots that we've seen, for example, with Procentech. But we still want to stay in this industrial ICT field. So I think we are a communication company, and this is where we want to stay. Today, our different brands could almost be a bit confusing. So we haven't maybe managed this so well when it comes to, at least from an investor relations point of view. But we kept some brands after the acquisitions that have strong brand in the market. But when you look on this bouquet of brands now with seven brands, it's a bit spreading in different directions. Let's see how this will be developed the next couple of years. But I think we need to consolidate some of these brands to make it more clear as well. But it's not urgent for us, but I think we can't continue to grow this to plus 10 brands. We need to consolidate going forward.

Great. And a final question from me, and I know that this has been a topic in recent quarterly earnings, and that is on prices. How has pricing impacted growth in this quarter? And do you see further room for price increases going into H2?

Joakim? Yeah, I can take that. So in the quarter, We don't disclose that fully, but there are a few percentage points added by pricing increases in the range of 5%, I'd say. Further price increases, I think we try to follow what's happening in the market on the online cost side. and right now we're not planning to do it but it's um we know that there's also pretty high cost inflation pressure so we're going to continue to see what to follow what's happened and if we need to we'll do the best to push further price increases thank you so much that's all for me have a great summer thank you thank you thank you your next question comes from victor hogberg from dance bank please go ahead

good morning so uh most of the questions already asked uh just trying to dig into some of it in terms of the gross margin and it's a follow-on on the on the previous question and how much of the work you've done on pricing did come through here in q2 and you said you expected to reach the above 63 percent over time um what kind of magnitude in q3 and q4 if you could help us and if anyone anywhere on that would be would be perfect

yeah so yes summarizing what we already said then so we've been going from when we started out we were around 61 i think in bottoming out around 61 and now we're 62.2 and we say that we when we're when everything is normalized we're going to be above 63 so in that sense i guess we're about halfway there in terms of price increases and if we were to see more cost increase increases on on the on the component side of course we need to do further price increases as well But I think I'm going to stop there, since we do have various discussions going on. We don't want to be too open here. So about halfway there, and about 63% is sort of the target towards the end of the year. Okay, great. Thank you.

And also, I get that it's an uncertain environment, and you don't really know the availability for the full quarter in terms of components and delivery capacity. What we expect is a gradual improvement in delivery capacity over Q2 and Q3, and I assume tangibly better situation in Q4. Is that what you see, or would you be more uncertain about Q4 delivery capacity as well?

I guess if you were to go back and listen to the last four quarterly calls, we've always been positive if we have to wait one or two quarters more. That's been sort of the story all the way. So this problem has just been pushing forward and it's not only us, it's the whole industry, right? So given what we know right now, we believe that Q3 will probably be a little bit better and Q4 should be better than Q3. It should be moving in that direction. As we said before, it's super difficult to know what's going to happen. It could be things happening that changes everything. But what we know right now, yes, that's the way it seems.

Okay, thank you. And also, just last question, and this has been asked in a different way, but with your discussions with customers, it seems that landline demand, that's not a problem. But in the near term, given COMPs, PMI is coming down. You have had some historical correlation with that, at least to some extent, even with a more broader product switch today. But are you getting any signals from your customers for the 2023 orders? Is that just too far out to be discussing today? Or what are you picking up in terms of 2023 and 2024 demand? It might be too long or too far out.

I think maybe I started joking, but my view is that on some markets like Japan, they are very keen on placing very long-term orders. But on most other markets, actually, we are also trying to refrain from taking too much order long-term. But in Japan, I see that we see a lot of activities that they want to place 2023 orders. Most other markets, we try to say, please wait, we are not ready for it yet, because we are not sure about the price level for 2023. So if we can hold that for a little bit, it would be helpful. Joakim, do you have any things to complement that?

I agree with that fully.

Thank you. Thank you. Your next question comes from Julia Ullud from SOB. Please go ahead.

Hi, Staffan and Joakim. Thanks for taking my question. Could you please give us some favor on the dynamics between increasing the software penetration and the EBIT margin?

I'm not sure I get the question. Joakim, did you get the question? Yeah, I guess I can take it.

So obviously building the software penetration will improve the margin since we're facing a close to 100% cross margin. It's still a small part of the overall business. So we have about 5% being software on the overall and out of that 5% maybe half or a bit less than half would be software as a service type of revenues. So Staffan presented that we're now releasing the Snap analysis. So that will be This is still a very small product, and we're talking a couple of million Swedish crowns. Of course, we're positive I think that that will grow, but it will take quite a bit of time for having the organic impact that will have, so the organic growth that that will give a big impact on the EBIT margin. I think we talk like tens of a percentage or something like that that will build up in line with that growth. I think the real, if we were to get a bigger,

help from that we were to make an acquisition i think that would be more software heavy otherwise it will take some time to to build that i don't know if that was what's helping you or not but that's the way it is yes thank you yes that was very helpful and then what would you think that the main drivers for customers would be to leave the software version that are free for for taking the new software solutions

I think what we do is on the E1 side, we're constantly working to make this pro offering, as we call it. It's the same as like Spotify. You can use the free version if you want to get some features, use the pro version to get some more features. We're trying to make it more attractive by adding features, and that we've been working on now. Also with the acquisition or the part-time stick we did with Connectitude in December last year. And then on the snap analysis side, we have a new product that we think the value proposition is excellent. And now we're just going to get the customers to understand how good it is so that they choose to buy this product. So I think that's a continuous improvement for the business and business development. And I guess those two things will probably be the main things that we're doing at the moment.

Great. Thank you very much.

Thank you. That concludes our question and answer session. I would like to turn the conference back to our hosts for some closing remarks.

Thank you. And thanks, everybody, for joining this Q2 call. And thanks for good questions. We are super happy that you are so interested in following us. We will take a couple of weeks vacation now and be back in August. So look forward to keep on working with challenges in Quadrion components. But I think we also can relax a couple of weeks here because things are going in the right direction, we feel, and it's a stable business also going forward. So thanks, everybody. And thanks, Joakim. Thanks for being part of this call, everybody. And we wish you a very nice summer. Goodbye.