Good day, thank you for standing by. Welcome to the Hexagon Third Quarter Report 2023 Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be the question and answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Paolo Guglielmini. Please go ahead. Yeah, thank you very much, and thank you for joining us today. Let's start from slide four to review some of the highlights from this Q1 2023. We had a good solid quarter posting net sales of EUR 1.287 billion. That represents an 11% reported growth on prior year, with strong organic growth of 8 percentage points, 2 from structure and negligible effects in the quarter. We were pleased to see a good uptake in terms of gross margin, up to 66.5%. It's all-time high in the quarter, 1.4 percentage points above Q1 2022. I would say primarily driven by volume and pricing, but particularly a richer software mix and new product releases that came in of higher gross margin than previous generations. We have posted adjusted operating earnings of EUR 371 million, an 11% uptick on prior year. Adjusted operating margin was 28.9 percentage points, pretty much on par with Q1 2022, yet negatively affected by effects. I would say overall, the business has leveraged pretty well on the additional volume. If we go on slide five, we start analyzing more detail in that organic growth. Looking at the two reporting segments, the Industrial Enterprise Solutions segment that posted 11% organic growth driven by asset lifecycle, 16 percentage points, I would say across the board, good SaaS progress, professional deals closed at a high value in the quarter, good diversification of the business and strong performance for the enterprise asset management portfolio. Manufacturing Intelligence came in at 10 percentage points of organic growth coming from most product lines. I would say e-mobility and all of the area of investment has helped a lot. Commercial aerospace, we are taking CapEx and investment to drive commercial aircraft production volumes uptick, another noticeable driver in the business. The Geospatial Enterprise Solutions reporting segment grew at 5 percentage points. Very solid performance from Geosystems, all in portfolio for buildings and construction and infrastructure positive across product line. 4 percentage points of growth in Autonomy & Positioning with good performance, I would say in defense and in agriculture. Safety, Infrastructure & Geospatial declined 11 percentage points. Not surprised. This is something that we were expecting in the quarter. I would say 8 percentage points of this decline came from winding down highly volatile, very low margin service contracts in defense in the United States. Besides that, we also had a one-off software deal fully recognized in Q1 2022 in the telecommunications space that didn't reoccur in this quarter. In terms of regional breakdown for the revenue, 14 percentage points of growth in Asia, with China strong at 10% and a good momentum going further. Europe came in at 9 percentage points of growth. North America grew 1%, but held back by those two impacts in SIG that we just mentioned. Going on to slide number six. Cash flow. Operating cash flow amounted to EUR 117 million in the quarter, primarily affected by a one-time tax payment, with a timing different from prior year. Working capital came in at 7.9 percentage points of sales. Again, in an attempt to fund this incremental growth and somewhat also driven by an uptick in inventory in order to have safety stocks and protect from the electronic component shortages. I would say that impact we've got less to do now with our P&L, but situation from a top line delivery has more or less stabilized. We still have some of those impacts from an inventory perspective. Cash conversion improved year-on-year at 66%. An improved picture, although still reflecting weak seasonality in Q1. The annual guidance of 80%-90% is reconfirmed on a full year basis. If we move now to slide number eight, Ben Maslen will take us through the Geospatial Enterprise Solutions segment. Thank you, Paolo. Good morning, everybody. The GSO goal, as Paolo said, organic growth of 5%, starting with Geosystems, 9% organic growth. We saw demand pretty much strong in every region, but particularly Asia and the Middle East. We also saw a stabilization in the Chinese market after a weak second half of last year. By product, we saw strongest demand in our mining business, surveying solutions, and also a good uptake from the new BLK360. In SIG, at -11% organic growth. Within that, the public safety business grew slightly. As Paolo mentioned, we took the decision to exit a number of low margin services contracts. That was at 8% of the 11% decline, with the bridge item being the large perpetual contract we had last year in the infrastructure business. Autonomy & Positioning was 4% organic growth, driven by strong demand for their solutions in aerospace and defense markets. In terms of the profitability, the operating margin rose from 30.1% last year to 30.3%, positively impacted by product mix, both within the divisions and across the divisions, which offset the negative impact from FX. If we go to slide nine, just some highlights of what's been happening in the divisions during the quarter. Firstly with Geosystems, they launched a product called REVEAL, an AI-driven solution for heavy construction. Here you can use a laser scanner or drone to capture a point cloud of construction site, and that's what you see on the right. Use AI to automatically identify objects, so it could be vehicles, vegetation, stockpiles and so forth. You can then remove them to have a much clearer picture of the underlying work going on. If we go to slide 10, you can see Immersal launched a new smart city visual positioning system. Here you can combine Hexagon's digital reality platform, HxDR, and Immersal spatial anchoring to allow you to connect the real world to the digital world. You can build a 3D map of a city and use computer visions to derive very accurate positioning within that model. That can be used to drive augmented reality applications that you can see on the right. Slide 11. Hexagon during the quarter acquired a business called Projectmates. This is a SaaS project management software platform used by project owners. You can use it to track progress on the job site, monitor delays, rework and changes and so forth. Projectmates will be integrated with other tools in the Smart Build Suite, and can take progress and monitoring information from OxBlue cameras, for example. If you look at slide 12, great to get an innovation award at CES for the Leica BLK360 scanner. This is in the virtual and augmented reality category. The new BLK360 launched last year is smaller and lighter than the original version, which was launched in 2016. As a reminder, it can scan four times as quickly, which obviously helped customer workflows, and it's already contributing to the organic growth that we see with Geosystems. Over to SIG on slide 13. Just some selected customer wins highlighting the continued good momentum for OnCall. Firstly, Alpharetta, the Department of Public Safety, they wanted a SaaS solution. They chose the OnCall Dispatch analytics and records management product to meet that demand. BMW also selected OnCall to manage their security operations across seven different European manufacturing facilities. A good example of how this technology is used outside of the core police, fire and ambulance market. Finally on to the end, slide 14. A nice example of how our technology is applied to environmental applications. Saudi Arabia's National Center for Vegetation Cover and Combating Desertification selected our geospatial software to support their initiatives, including a plan to plant 600 million trees by 2030. They will use our software suite to help monitor this project and make sure that vegetation initiative flourishes. Back to you, Paolo. Great. Looking at the Industrial Enterprise Solutions portfolio from slide 15, as discussed, both MI and ALI experienced good growth across regions. MI primarily driven by growth in general manufacturing in the software portfolio, in the CAM portfolio. We have of course integrated on top of the 10% organic growth ETQ as of April of last year. I would say in terms of demand for the college devices, strong uptake not only in China, but I would say also in Central Europe, where we see a lot of demand related to R&D projects and productization of new tools and methods related to e-mobility. In the Asset Lifecycle Intelligence portfolio, 16% organic growth was great to see both in the core and in the Enterprise Asset Management portfolio. Of course, EAM is more and more tightly connected with the rest of the business. Synergies are starting to flow through in between core ALI and EAM, and we've had good progress here, both in terms of driving recurring revenue growth and closing transformational perpetual deals. We look at a couple of these, sort of marquee or significant wins in slide 16. Two projects related to the enterprise asset management portfolio. At the top, a major U.S.-based technology corporation has selected Hexagon's EAM to manage its global data center facility assets. The goal really is to maximize asset performance, increase reliability, support this hypergrowth phase as they build new data centers and retrofit existing ones. This is a landmark win for EAM. The second from Transdev Australasia. This is an operator of buses and ferries, light rail and rail services in Australia and in New Zealand. A large company managing thousands of assets, delivering more than 100 million journeys per year. A lot of complexity and a lot of need to manage maintenance routines and keep uptime going. What EAM helps them do is really to centralize all of their systems, create improved visibility, automate processes, and improve overall the asset lifecycle management. I think these two wins underline how horizontal that platform is. Certainly best in class, and we're putting investment in to make sure that we are relevant in multiple of these verticals. If we move to slide 17, two important wins in the core of the offering of ALI. The first one with BASF, of course, the largest chemical producer in the world. BASF was a long-term customer for ALI. Then progressively BASF is moving on to the SaaS offering of ALI. I would say it's a testament to upsell capabilities and the relationship that has been built over time. The second example is from Georgia-Pacific. Georgia-Pacific is one of the world's largest manufacturers, distributors of tissue, pulp, paper, packaging, building products. Of course, it's part of the Koch Industries group. GP has selected Hexagon as a strategic partner when it comes to OT cybersecurity. Our cyber solutions will provide inventory and vulnerability management capabilities, enable comprehensive OT asset inventory. Moving on to Manufacturing Intelligence in slide 18. A couple of examples of new accounts that have been opened through the ETQ quality management software platform. Their offering is called Reliance, and it's a true multi-tenant offering with 40 applications, sized for high complexity OEM-type accounts. In this case, we've closed significant business with Sealed Air, which is a global food safety and product protection solution provider. Large company, more than 16,000 employees. ETQ Reliance is their global quality management system, replacing a lot of homegrown processes. It's gonna get rolled out across their 100 manufacturing plants over time. Second example is from Belgium Solvay, a very well-known leader in material chemical solutions to solve critical industrial societal, environmental challenges. Large company, active in multiple countries, more than 20,000 employees. Again, a lot of innovation and critical solutions. They are deploying ETQ. Solvay is a long-term customer of MI, has been introduced by the CAE portfolio from R&D onto quality, and we are deploying Reliance across their facilities. Just to conclude on MI, we have announced the launch of our digital manufacturing platform already a couple of months ago, now commercially available from Q1. Nexus has been co-developed with our long-term partner, Microsoft, using their Microsoft Fluid Framework. A lot of focus on making our technologies increasingly available through Nexus, more easily consumable by customers. A lot of focus on helping customers collaborate across silos and across applications onto this next generation platform. We also announced in the quarter a couple of partnerships, amongst others, with Altium EDA, a fast growth sort of designer of electronic software design tools. We're gonna connect our platform and theirs to make sure that we can go and cross-sell customers and help them solve multi-physics type problems. We look forward to seeing Nexus growing commercially over the next quarters. To slide 20, just an overview of the organic growth by geographic region and by industry. As you can see from the growth rates there, we had good growth in all regions with the exception of the U.S. U.S. is explained in the down arrow by the decision to exit those contracts in the defense sector in SOG. Ex that, every market in North America has good momentum. China, 10% organic growth. That momentum continues, we feel optimistic about that for the second half of the year. Some softness or down arrows in infrastructure and construction markets. We've seen a little bit of a slowdown there. With the engineer systems, that's being offset by very good growth in every region in the surveying business and also reality capture centers. I think the rest of those you can process yourselves, with you. Great. Just in conclusion, in slide 23. First, solid quarter, solid start of the year and continuation with good momentum. Great opportunity for all of us also to catch up with our customers and find new ways of looking at helping them deliver great quality products across industries will be at HxGN LIVE, our user conference in Vegas from the 12th to the 15th of June. We would love to see, of course, also as many of you on the line investors, partners, stakeholders and customers are absolutely invited to join us in Vegas. Thank you. With that operator, I think we're ready to take questions. Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by, we will compile the Q&A roster. This will take a few moments. Now we're going to take our first question. It comes from the line of Joachim Gunell from DNB. Your line is open. Please ask your question. Thank you, and good morning. Two questions from my side. Starting off with ALI, can you highlight the underlying growth rates here of the perpetual based licenses as well as the source-based revenues in Q1 and what is driving that? Based on the growth rates of the perpetual business, is it fair to assume a slowdown over the coming quarters? Yeah. Hi, Joachim. You're right. I mean, we saw very good growth both on the subscription product, but also on perpetual. I, you know, I would say that we don't know next quarter and the quarters after how many perpetual licenses we will win, so there's a little bit of volatility there. They probably added, you know, a few% to the overall growth rate of ALI. We saw double-digit growth on the subscriptions like that. Underlying momentum is very strong in our business. Great. Thank you. Also on the both operating and the free cash flow conversion, slight improvement sequentially. I know there are seasonal effects here, but can you just comment a bit more about the drivers to get back to your 80%-90% target here on a full year basis? You know, I think as you say, Q1 is normally seasonally weaker growth. The reason for that is you know, you obviously pay the sales commissions and bonuses that you accrued for during the prior year. You'll see that movement on the balance sheet, the decline in the accrued expenses, that those monies being paid. X that, I think we made progress in terms of accounts receivable during the quarter. We brought that balance down. We are carrying a little bit of extra inventory at the moment. You know, if you remember last year, we had restrictions on our ability to deliver because of component shortages. We've taken the decision to carry a bit more inventory to make sure we can meet customer demand. You know, we don't see that problem getting worse or going up from here. I think as we go through this year, you know, we would expect that cash conversion ratio to creep up. As Paolo said, be in the 80%-90% range for the full year. Great. Thank you. Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from line of Sven Merkt from Barclays. Your line is open. Please ask your question. Great. Good morning. Thank you for taking my questions. Maybe a first question on the capitalization of R&D. This has increased again significantly this quarter. Can you comment what drove this and at what level intangible CapEx will stabilize from here? Can I also follow up on the working capital? Even seasonally adjusted, it has been weak, and I expected this to benefit a bit more from the reversal of the working capital investments you have done in Q4. Can you explain what happened here exactly? You know, from a phasing perspective, when you really expect to see an improvement now in working capital? Hi, Sven. Yeah, on the working capital side, you know, I think one thing that's obviously stronger at the moment is demand. That does feed into your accounts receivable, given the hockey stick we have at the end of the quarter and also the inventory carry. You know, the longer demand surprise on the upside, the more it is gonna be, you know, a drag on working capital. I think that's the reality of having a hardware component of our business. As I said, we did bring accounts receivable down in the quarter, and the real swing factor on the working capital in Q1 is a seasonal phenomenon, which is paying the accrued payments that get built up last year. That won't happen in Q2, Q3, or Q4, and that's the reason to expect the cash conversion to improve. Yeah, in terms of R&D investments and capitalization, what I would say is that we are in an investment cycle because we see sort of opportunities across the board. I think we have a quite an exciting lineup of innovation coming up. I would say a lot of the innovation that we see in positioning is driven by contracts that were pre-signed and commitments that we have. Relatively kinda low risk type of development. A lot of what we see coming from Manufacturing Intelligence is future-proofing the core of the methodology revenues on next generation stationary and portable devices that will come in at higher gross margin. Nexus, to future-proof the software offering. I think a lot of the growth that we see in ALI today comes from investments that have been made in the last years to make sure that we lead from a SaaS perspective. I would see the kind of the R&D expense line kind of flatlining going further. I mean, I see we have the teams in place now, the capitalization rates depend mostly on getting closer to those release dates and having more line of sight on productization and having kind of de-risked technology developments. We feel there's a massive opportunity, and we wanna stay ahead of it. Great. That's helpful. Can I also ask a question on cost growth from here? You know, costs were quite high this quarter, EUR 480 million. If we now think about the cost growth sequentially throughout the year, are you still hiring? Should we expect sequential growth from here? Any color really would be helpful. Thank you. Yeah. You know, I think obviously, there are some cost lines that are still normalizing coming out of COVID. I think, you know, if you look at things like travel and entertainment, you know, we're probably back to normal rates now. You know, we are hiring selectively in the businesses that are growing. You know, if we're trying to drive growth in EAM or ETQ, we're obviously hiring people to do that. I think, you know, we're keeping a fairly one foot on the brake as well at the same time, given, you know, some of the concerns that there are around the macro development through the second half and into next year. You know, we wanna make sure that we don't overcommit. Very helpful. Thank you very much. We don't see a step up in those cost lines from here, and I think that's reflected this quarter in, you know, the margin being slightly up year-over-year. Perfect. Thank you. Thank you. Now we're going to take our next question. The next question comes through line of Adam Wood from Morgan Stanley. Your line is open. Please ask your question. Hi, good morning. Thanks for taking the question. I wanted to talk about the Manufacturing Intelligence business a little bit. I guess this has been a very challenging cycle for all of us to kind of work through. You know, we've been talking about recession for probably more than a year, but that business is, you know, it's had a very strong performance, particularly in Q4 and Q1. With, you know, supply chain constraints have probably factored into that, it's, you know, kind of hard to work out how consumer demand translates into demand that some of your customers are seeing. Could you maybe just talk a little bit around, you know, when you look at pipelines in that business, are you continuing to see strength? You're not seeing your consumer weakness in the end markets kind of feed through into demand at your customers. I appreciate you're not volume driven, but ultimately there will be some correlation. Maybe talk a little bit about whether you see things like electrification driving new cycles of spending on quality. Any help around the kind of cycling in MI would be helpful. Secondly, probably similarly on China, how much of Q1 was a rebound from reopening? You know, would pipelines suggest again that actually with easier comps that business can sustain decent levels of growth through the rest of this year? Was this some bounce back from reopening benefit in China? Thank you. Yeah, Adam, thank you. I mean, on Manufacturing Intelligence, what I would say is that the portfolio is becoming more diversified. What's important for that business is to be associated with and be highly competitive in the new areas of growth and research and innovation and digitalization, right? As you said, electrification is one of those, but not only. There's increased demand associated with sustainability solutions in consumer electronics. There's more of an adoption trend that is helping us. ETQ came in with customers in medical, in the medical sector that traditionally were not so much of a focus for us, and we managed to cross-sell into those accounts with the rest of the portfolio. For us, it's very positive when we see sort of an association and a growth in revenue from OEMs and key accounts and leaders in more of those industries. I would say when it comes to China had a good start of the year. I would say Manufacturing Intelligence, of course, was in good shape. China grew at 10% in the quarter, and of course, Manufacturing Intelligence is three-quarters of the business. Clearly that was in good shape. I would say the energy portfolio did well as well. Construction is probably still on a lower base than it was some time ago, it grew in the quarter. We've attended multiple events in different locations. There was good participation to construction infrastructure type events, good demand. We're working on localization. All in all, we are positive on China for the rest of the year. There's good momentum from the team that reflected in the deal flow and pipeline. Thank you very much. Thank you. Now we're going to take our next question. The next question comes to line of Daniel Djurberg from Handelsbanken. Your line is open. Please ask your question. Thank you, operator, and good morning, Paolo and David. I would like to actually revisit the investment you do in R&D that is on a quite high level. You mentioned that you're now have launched Nexus. My question is if we should expect the total R&D as percentage of sales to stay at the, you know, 20%, 21% level or coming back to like 80%, 90% on back of that launch, or if we should expect, you know, that you have much more in the pipeline that you are working on. Thanks. Yeah, thank you, Daniel. I mean, so when you look at that spend, in terms of overall R&D spend, I mean, we look at the constant, at the current run rate as being on the high side, right? That means also we monitor it accordingly internally. I think where you go and spend in R&D reflects a little bit the shift in between existing development projects nearing completion and launch, and at the same time trying to launch new initiatives that keep your sort of innovation pipeline going for the future. As I said before, I don't see us gearing up R&D spend further. What we're gonna spend a lot of time doing in the future is to try and find more, especially in the software portfolio, more elements that we can go and cross-utilize within the portfolio. We're spending a lot of time looking at platforms components across the divisions and try and make sure that everything that we do to build Nexus as the best possible platform and data automation tool, we wanna make sure that those capabilities get reutilized in other industries. You know, in ALI, we are, I think, competing very well when it comes to SaaS adoption in process industries. There's a lot of work that has been done on architecture in the past 3 years. We wanna reutilize some of those elements in other parts of the portfolio. I think for us, the future is about focusing on those releases in the next 12 months, making sure that they count commercially, and then go and find those areas of cross-use and optimization. Perfect. Thanks. If I may, another question on, yeah, why not on the working capital again? I was wondering if you see, you know, differences now on back of geographical change or difference in working capital to sales on back of geographical uptakes, et cetera. Also if, overall, if the customer are more cash flow-centric, that we should expect, you know, this trajectory to continue to go north towards 10% or something. Hi, Daniel. I don't think so. You know, I think if you look at the asset side of the balance sheet, you know, I think, you know, receivables came down. I think inventories, as I said, we had a step up, you know, that's not getting worse. The shortages, if anything, improve, I think, as we go through the year. The Q1 cash flow, really the big driver would be accrued expenses, which is a seasonal phenomenon, and isn't gonna happen in Q2, 3 or 4. So no, you know, I think bigger picture, you know, it's been a downward trend in terms of working capital to sales for a long time, as the business has shifted towards software and services and, you know, medium term, we would expect that to continue. Perfect. Fair enough, and good luck in Q2. Thank you. Thank you. Now we're going to take our next question. The next question comes from line of Erik Golrang from SEB. Your line is open. Please ask your question. Thank you. I have three questions. First one on the gross margin expansion you saw in the quarter. Is that coming from both divisions or particular support from one of them? You mentioned new products, volume and pricing. If you look at it from a divisional perspective. The second question is on the organic sales drop in SIG related to the exited business. Should we expect something? I think you talked about a 3% or an 8 percentage point drag from that. I guess we should annualize that for the rest, the coming three quarters. The third question, if you could say something about sort of how demand. We talked about China, but if you look in Europe and North America, how was sort of growth trending through the quarter? Some companies have talked about a softer end to the quarter, particularly in North America. If you exclude the exited, SIG business there in North America, what was the underlying sort of growth trends through Q1? Thank you. I would say, thank you for the question. On the first one related to the gross margin, I think there's been an uptake in both reporting segments driven by different dynamics. Certainly in both areas. When it comes to SIG, yeah, I mean, I think we're gonna see a similar type of impact in Q2 and then possibly, comparing ourselves to Q3 and Q4 2022, we're gonna see that impact sort of softening. Again, I mean, we wanna be very focused on making sure that our commitments are aligned to the strategic direction. Meaning, synergistic business, be more staff sort of oriented and being very focused on things that can be accretive from an EBIT perspective. Those business lines don't kinda match those criteria. In terms of Europe and North America, In North America, we see deal flow pipeline being at a good level, so a lot of the impact was really driven by SIG. We are wary of course of a business environment that is uncertain, so we try and reflect that in the way we kinda go to market in North America. When it comes to Europe, for me, the good news of what happened in Europe in the quarter is that a lot of that spend, whether that's aerospace CapEx for commercial aircraft or whether that's investment in eMobility supporting the construction of gigafactories trying to make those processes more resilient and stable or whether that's sort of infrastructure-led spend, those are very long-term type of activities. Gaining ground in those areas I think, is gonna prove resilience also in the future. Okay. Thank you. Then one follow-up on SIG if I may? This has been a slowing part of the portfolio for quite some time and yet still clearly on the sort of group profitability from a margin perspective at least. How much more do you think you'll need to do that before? How much more shrinking to be able to start growing that business at a good incremental margin? Look, I mean, we will see about that. What we think is positive in that part of the offering is that in the quarter we've closed good amounts of business, for instance, with OnCall. We see that product group is starting to pay off in terms of innovation. The new generation dispatch systems, both on-prem and on SaaS are competing well. That's really a positive. We're gonna keep on looking at especially those service assignments. We wanna make sure that we focus on our IP, and we wanna make sure that service assignments are conducive to software sales in the future, so scrutinize profitability for all of those assignments that don't fulfill that criteria. Thank you. Thank you. Now we're going to take our next question. The next question comes from line of Mikael Laséen from Carnegie. Your line is open. Please ask your question. Excuse me, Mikael. Your line is open. Please ask your question. Okay. Thanks. I have a few questions. First one is a follow-up on this termination of the low-margin contract in ENI. How should we think about the margin impact here? Did you have an extra cost for doing this? Yeah, Mikael, thanks for the question. This was really us, deciding not to rebid, for certain contracts or being way more, let me say, careful in making sure that business would have coming at the right margin levels. We have done a realignment of the cost structure in the quarter, but most of the resources dedicated to those projects were external, to start off. Okay. When this is out of your books, the old contract, you could have a margin support, I guess. Yeah. From a mix perspective, Mikael Laséen, you know, we're stepping out of contracts that have a significantly lower margin than the division as a whole. Yeah, mix-wise, it helps. All right. On Manufacturing Intelligence, can you say something about the order trends in that part of your business, the bookings? I would say, Mikael, the bookings were in good shape. I mean, we've built a little bit of backlog in the quarter. I would say that happened both in the devices and in the software side of the portfolio. Again, good deal flow, good creation of new opportunities were closed well as well as recognizing well. Still good momentum. Okay. Also on the supply chain side, what's happened here in Q1 compared to the second half? It would be great if you can comment also on the delivery and shipping cost and any component cost if that is starting to stabilize. Yeah. I mean, I would say, the type of components that are a little bit more under pressure from an availability perspective have changed. I mean, as we said, not as much of a top-line impact any longer. We have had some missed shipments in some divisions and a little bit of a catch-up in others. I would say neutral all in all. In some product categories we see pricing easing a little bit, and I would say also logistics costs driven by supply chain have eased as well, especially in MI, where there's a mixture of trying to be more efficient and pricing easing. We hope to see that trend continuing. Okay, got it. Just a final one, if I may. Your spatial competitors have talked about dealer inventory reduction. Do you also see this in the market? And how is, like, your systems affected? Yeah. Mikael, we've seen a little bit of that in the U.S. I mean, obviously the U.S. business for us is smaller. We I think have more direct sales than they do, so that it's less of a drag on our business. Yeah, I think there has been some inventory rebalance in the U.S. construction markets. Okay. Thank you. Thank you. The next question comes from line of Nay Soe Naing from Berenberg. Your line is open. Please ask your question. Hi, good morning, everyone. Thank you for taking my questions. I've got a few as well, if I may. Starting with the organic growth rate in the quarter, you know, it's been a big positive surprise for me, and I think probably for a few other analysts on the call as well. Just focusing on the in the GS specifically, you know, you managed to do 9% year-over-year growth organically. Going forward for the rest of the year, could you kind of maybe give a sense of how we should be thinking about that, especially if the headwinds of... If the headwinds in China unwind for the rest of the year, especially in H2, we'll have an easier comp compared to what we just had in Q1 and Q2? Yeah. Hi, Nay Soe. You know, I think there are a lot of moving parts. I mean, if you break the Geosystems growth down for the quarter, you know, it's probably had a couple of percentage points of growth coming from new products. Things like the BLK360, so it's not really macro-dependent in particular. You've got the mining business where you've got very good growth. It's got its own cycle, content mapping and things like that. There are a lot of individual drivers in Geosystems that have good momentum, good trajectory. If you think about the construction pieces, you know, I think it's not a big business for us, compared to MI in China, Geosystems. We do see an improvement relative to Q4, and, you know, we would hope that continuing to go through the year. You know, saying that, we'll have to see how higher interest rates feed into, you know, the construction development in North America and Western Europe. You know, a lot of moving parts. You know, net, I think that there are drivers within Geosystems that are not dependent on the macro. You know, tied to new products and markets like reality capture, where, you know, we feel confident we can continue to grow, however it plays out. That's helpful. Thank you. My next question is on, and it we've touched a lot on the investment cycle or investment phases you're going through at the moment. That's probably reflected in when you try and match the a lot of the good progress that you made at the EBIT margins to the from the cash generation margin as opposed to, you know, the free cash flow margin. We started to see a disconnect in the past 2 years. You know, EBIT has nicely trended upwards, but whereas on the free cash flow margin side, we're not seeing that. I suppose my question is gonna be when should we expect that disconnect to stop? When do we start seeing improvement in free cash flow margin that will track the margin improvement we see in the P&L as well? No, on the working capital side, you know, if you look at the slightly longer term trend, I mean, you had probably an overshoot in terms of our ability to pull in working capital through COVID and immediately post-COVID, right? That unwinds as you have a couple of years growth. You have to put the working capital back out there. Plus, as I said, on top of that, you know, we have held a bit more inventory to make sure we can deal with some of the kind of component volatility that we've seen. You know, we don't see it getting worse from here. I think, you know, as that settles down, we go back to the longer term trend that we've been on as the working capital sales starts to come down. As Paolo said, you know, we are in a period now where the overall level of R&D spending is higher than it's been for the last two years because of these very large projects that we're working on. We don't see that amount going up from here. Obviously, as those products are launched and they drive growth, that would drive the investment ratio to sales to start to come down again. No, that's super helpful. Thank you. Last question from me. In your hardware business slides, you know, we've seen from other manufacturing hardware vendors, especially in automation and related to digitization, that they're seeing quite a good tick up in the order books. I was wondering if you could comment a little bit on your order book and visibility for the remainder of the year in your hardware business. Yeah. I would say as we discussed earlier, there was good order intake, especially in the Manufacturing Intelligence, sort of, area where we build backlog. I would say that will create. Neutral as well in Geosystems, where for sure we didn't build backlog in the quarter. Things are still in decent shape. For the Geosystems side? Yeah, as well in Geo, we didn't have a backlog erosion in the quarter. All things considered, good progress both on the bill side and on the shipment side. Thank you very much. Thanks. Thank you. Now we're going to take another question. The question comes from line of Alexander Virgo from Bank of America. Your line is open. Please ask a question. Yeah, thanks very much. Morning, Paolo, Ben. I wondered if I could just distill the free cash comments down into, is it fair to say the balance of the year is likely to be a working capital unwind tailwind to free cash, but your level of investment is going to stay at these sorts of levels for the foreseeable future? That's the first question. The second question is, I wondered if you could comment around sort of the very front end of construction market dynamics. Because I'm guessing as the position that you guys occupy in terms of surveying and sort of right around the front end of discussions on projects and FIDs, et cetera, you might have a slightly better insight into what's going on in terms of activity and dynamics there than most. Thank you. Hi, Alex. I mean, on the construction side, you know, as the arrow chart shows, I think we saw a little bit of softness maybe on, you know, machine control kind of business. That goes back to, you know, the previous question around sort of inventory, de stocking or normalization in the U.S. That's a little bit of a drag. Again, that surveying business, you know, was pretty strong across the board. As you know, that largely plays into heavier construction projects, more infrastructure projects. I think there is a lot of spending in that area across the world that is definitely helping that business. I think depends a little bit which segment of the construction market and which geography you're looking at. Then on, you know, breaking down the cash flow question, yeah, I think that assumption is right. You know, I think, from a working capital perspective, you know, we would expect that to be a more positive driver as we go through the back end of the year, because you won't have the season effects that we had in Q1, which is the payment of the commission performances. In terms of the investment level, yeah, I think, you know, we don't see it going up from here, but I think, you know, some of these are longer term projects, multi-year investment projects. You know, I think, for the rest of this year, that will stay at a pretty similar level. Okay, thanks very much. Thank you. The speakers are on for the questions. I would now like to hand the conference over to Paolo Guglielmini for any closing remarks. Yeah, I would say just to say, thank you, everybody, for joining us. A lot of very interesting questions. We're gonna talk again in three months. That does conclude our conference for today. Thank You for participating. You may now all disconnect. Have a nice day.