CNC Software, LLC (SAND) Earnings Call Transcript & Summary

Good afternoon, and welcome to this conference call with us at Sandvik. Today, we're going to speak about, of course, the announcement we made on Wednesday, so the deal on CNC Software with Mastercam. But we're also going to give you some more color on Sandvik Manufacturing Solutions, new targets for 2025. My name is Louise Tjeder, Head of IR, and presenting is our CEO, Stefan Widing; CFO, Tomas Eliasson; and Mathias Johansson, Head of DPA at Sandvik Manufacturing Solutions. So yes, we will start with the presentation, and then there will be time to take your questions. And with this, I hand over the word to you, Stefan.

Thank you, Louise, and hello, everyone, and welcome to this conference call. If we can go to the next slide here. Those of you that follow us at Sandvik regularly, you will recognize this slide. It's from the Capital Markets Day in November of last year, where we have highlighted our making shift strategy with a special focus on shift to growth. We have a number of businesses active in different markets with various underlying growth trends. Our target is to grow at twice the speed of the underlying market. Of course, the highest growth rates we see in what we have labeled Sandvik Manufacturing Solutions. So manufacturing solutions a little bit wider scope in the value chain connected to Industry 4.0 trends. Here, we see at least 10% growth in the markets we are present in and our target is then to grow at twice that pace. If we go to the next slide, this is how we have presented this before. You should recognize this as well. We have 3 divisions within Sandvik Manufacturing Solutions. The first one, Design & Planning Automation, or DPA, as we refer to it internally, is present in the steps in the value chain that is premachining or preadditive. Here, we have design and planning software and tool and logistics software and solutions. The addressable market here is around SEK 26 billion. And we can, especially with the latest acquisition, service the whole of this market, so SEK 26 billion. The underlying CAGR here is 7%. And as of the latest announcement, we are -- we have now taken one of the leading positions within this market segment. And then we have additive, which we really haven't shared in the news regarding -- during this time. So I will just leave it as it is. We have talked about it before. And then we have industrial metrology, which is a significant market. The main change here is that our serviceable market has doubled from SEK 6 billion to SEK 12 billion, with the addition of DWFritz. Here, the segments -- we are present in all the segments we can service are some of the faster-growing parts of industrial metrology, so the CAGR here is around 12%. If we take the next slide. Again, it's been a busy summer for us, both in SMR with DSI, some round tools companies in SMS, but then not the least the announcements in Sandvik Manufacturing Solutions. We announced Cambrio on July 1, DWFritz on July 12, and now on Wednesday, August 25, the acquisition of CNC Software or the creators of Mastercam, which is how they are known in the industry. Mastercam is a bit of a jewel in our crown going forward. They are -- it's the most widely used brand in the industry. They have a significant install base, a strong reseller network and very strong position in the SME segment. We'll, of course, talk a little bit more about that during this call. But I think it's fair to say that the importance of the Mastercam acquisition is bigger than the revenue and EBIT figures indicates. Of course, ultimately, it comes down to financials. But for us going into new segments here, this gives us a size and the credibility, if you put these together, that is also very important for us as we enter this new space. But I will let Mathias cover this in more detail since this will be his business going forward, so Mathias.

Thank you very much, Stefan. So next slide, please. If we start with talking about the mission for Design & Planning Automation, our mission is to automate the manufacturing value chain for specifically small and mid-sized manufacturing companies and at the same time, deliver competitive point solutions for large OEMs. We believe that the most efficient way of doing that is delivering products that are open and agnostic, which means simplifying integration with install base. And we think generating recurring revenues through strong position in CAM, design for manufacturability and production logistics is going to be essential. So next slide, please. Now if you then look at our strategy, we really focused the first 12 months here on where the strategy of DPA is focused on the CAM market. So we think that, that's the most important market for us to enter, both in terms of growth rates, but also because there is a proximity and integration opportunity with the current business in Sandvik Manufacturing and Machining Solutions. We also feel that CAM is a vital component to be able to create an offer of automated solution from component design all the way to machining. So next slide, please. Why CAM? A little bit of repetition. First of all, it complements our premium tooling business very well, tool selections and productivity improvements are often made in CAM. We see that the market has been consolidating quickly. For us, it's a great opportunity to go into the software market. We also have a good ratio between the tooling market and the CAM market. And it means that we have also a significant digital reach into the SME market, specifically with the Mastercam acquisition. This leads us to the third step. As I talked about, CAM is really the center piece of data capture and data use. So we will be able to use the position we have around tool data and cutting data and enrich this solution, creating automated process for our customers that will both improve intimacy, but also give us the position of looking into other types of business models. So next slide, please. If we then look at CNC Software or the creators of Mastercam, next slide, it is a leading provider of CAD/CAM solutions. It is the most widely used CAM brand in the industry, has a particularly strong market position for SMEs and also very well-established partnership with leading machine makers and tooling companies globally. It's been an independent family-owned company since 1983, headquartered in Connecticut, U.S. Current CEO, Meghan West, is part of the founding family. Revenue is around USD 60 million and 220 employees and has an extremely strong foothold in Americas, but also very present in both EMEA and APAC. So next slide. Some of the investment highlights is, of course, and we talked about this. It is definitely the leading brand in the CAM market. They've grown above market growth since the start, has an extremely large and well diversed customer base and actually operates the world's largest CAM community, has a very compelling financial model, 100% software revenues, 60% recurring. They also have their own educational program through Mastercam University and extremely strong values and extremely high employee engagement as well. Next slide, please. So if we summarize the strategic fit, access to a world-class CAM brand gives us sizable market share into a high-growth CAM market. It complements our current position and know-how in machining, also giving digital reach into the SME space with a very compelling financial model. This will be a central part in the creation of this manufacturing solution. So I think that -- the sum of all that means that we will have a great opportunity of creating the -- an SME offer for a wider community of users. Next slide, please.

Yes, so let me comment a little bit on what this means for the bigger picture. Maybe first, a short comment on Mastercam and Cambrio. These 2 companies while both are in the CAM space, they are highly complementary, we should say that. Cambrio has about 80% of the revenue in very specific niches in the market, where they are very, very strong, for example, [indiscernible], while Mastercam is more of a generic solution. There is some overlap between GibbsCAM and Mastercam. But also here, GibbsCAM is addressing some specific niches such as Swiss turning and Swiss milling. That is not the main strength of Mastercam. So we see this as highly complementary. Same with CGTech, which is focused on verification and optimization. So the portfolio overall becomes very strong naturally. If we look on the overall picture here, what we have had and what we have now created with these acquisitions, we are beginning to see a very good coverage in the value chain with various software and also hardware solutions, where we will gradually be able to put things together and offer more comprehensive solutions to solve our customers' problem in particular, further reduced waste in the process. Of course, there will be cross-selling opportunities and not the least between these various software companies that are in different parts of the value chain, I would say, that's a low-hanging fruit more or less. Also with SMS, we see already -- CGTech, of course, came in over the last year. We already start to see the benefits of the various customer presence that we have in our core business and what that can do to help also the newcomers in the business. Also in the other way, we expect gradually -- as also Mathias mentioned, we will have an access to channels that we didn't have before and SME customers that has been more difficult for us to reach with direct sales model on the cutting tool side. So also there we see a benefit going in the other direction. Of course, over time, we will see scale benefits in, for example, R&D and so on. But that's not something we will push in the beginning. The integration of these companies will be light. They will continue to run their own P&Ls with their own brands as business units within the division. And then we will gradually look at these other type of synergies when the teams feel there are -- they identify opportunities. And they see that it's the right thing to do. We will not force common things upon them that will disrupt their ability to continue to be the successful businesses that they already are today. But at least my experience is that over time, they will rather pull for these type of collaborations because they identify areas where they see value. That's when we get the best outcome. But, of course, there is also knowledge sharing here between these different companies that's going to help us become even more competitive and more differentiated when we will build -- put everything the knowledge of all these companies together. We have not put a synergy number out there, and that's on purpose, so to say. It's still early days for us here. The opportunities are plentiful. We are super confident in that they are there, but we think it's too early to put specific numbers on it. But you can see, of course, in the increased target that we have communicated, you can see that as an indication that we are confident that not independently and as a whole, this group of companies will benefit from each other from a growth perspective. We'll take the next slide. I hand over to Tomas then to take us through a little bit on the financial data.

Yes. Thank you, Stefan. Next page, please. So let's have a look at some of the transaction highlights and financial highlights. I'll start with the enterprise value, and we have agreed with the seller not to disclose the consideration. The closing is expected to happen during the fourth quarter, of course, subject to the normal regulatory approvals. If we then move to the financial highlights. The underlying EBITA margin is expected to be accretive to Sandvik Manufacturing and Machining Solutions. However, as often is the case with these kind of acquisitions, there will be a deferred revenue haircut during the first 12 months, which will -- of course, will impact the margin. So in the beginning, the EBITA margin will be -- for the transaction will be slightly dilutive to the EBITA margin, the SMM EBITA margin. The impact on earnings per share will be slightly dilutive to the group at start, at least. And then if we take a step back and look at the balance sheet and what this means for the whole group and our ability to fund ourselves and future acquisitions and investments, the latest published numbers are from June 30, and the net debt at that point in time was quite small, the gearing was 0.06. However, then during the third quarter now July, August, a lot of things have happened. We actually paid for DSI only a few weeks ago, and that was close to SEK 10 billion. And then we had announced Cambrio. We had announced DWFritz. We have announced now 2 days ago Mastercam or CNC Software, and then there are a few others. So quite some, let's say, outflow on acquisition spend. The funding for all this is -- it's not that complicated. We have basically used all our excess cash we have had in the balance sheet to pay for it. So we can say that the problem with excess cash is now solved, and the balance sheet is more -- will be more efficient going forward. If we look at the rate in KPI, so the net debt KPIs, we have a financial target of 0.5 for gearing. And we have not an official target, but we have an ambition then to not go beyond 1.5 when it comes to net debt over EBITDA. So in both of those 2 important net debt KPIs, we would still have plenty of headroom after these levels. So we will continue to have the firepower to do further acquisitions -- bolt-on acquisitions in the future. So with that, I'll hand back to Stefan, I think.

So just to summarize then, take the next slide. Hopefully, you will have seen that Mastercam is a strong strategic fit for us with the strategy we have to grow in the -- in digital manufacturing close to component manufacturing. In this space, CAM has been identified as the most important segment to enter due to the growth rate and the closeness to our core business. And here, Mastercam is the most widely used brand in the industry. So a clear strategic fit there. And this acquisition together also with the previous acquisitions is making up actually the leader in the overall CAM market if we look at the install base, which is, I believe, a strong achievement during this 12-month period. Not to underestimate also is the fact that Mastercam is strong in the SME market. Again, this is a market which is more difficult for us to reach through direct sales model. And the strong reseller network and the fact that we will have a software in place with these customers gives us basically a digital reach directly to customers in the SME space. We believe in the future, that's going to be a very, very important asset also for the core business. So overall, a significant step forward in our strategy. That has led us also if you take the next slide and one more to upgrade our objectives then for Sandvik Manufacturing Solutions because the acquisitions we have now announced together with organic growth, we are expecting going forward here means that we can see that the target of SEK 4 billion has been set too low. We will reach that well ahead of plan. And I guess you will do the math yourself and you will, of course, see that also. So we felt that this was the right time also to upgrade that target to something that is more relevant now based on where we already are. So we announced that the target to reach SEK 6 billion is that which is a factor of 7 versus 2019 for SMS. It could be worth noting if we add the growth in SMS, then it means it will contribute about 2% to the total annual growth of SMM during this period. So one way we're looking at it is that it's 2 to 3x compensating for the expected dilution from the EV transition in SMS during this period. Just to put things into context, when we are trying to explain that we are fairly confident that, that headwind is well under control for us. We have also decided to be more clear on the EBITDA margin target here. We didn't really put the number out there before. I think it's important when we upgrade the target for revenue to show that we also expect it to be profitable growth. So that's why we also now clarify that we expect -- or the target is to be at least a 20% EBITDA margin. We still have a lot of work and growth ahead of us here, so -- and of course, more acquisitions also in this area and it's difficult to know exactly where that will come in. So see this as an approximate number. Don't try to distill it into fractions or a percent, so to say. What we really want to say here is that this will be a good and profitable business going forward. And that's the message we want to send at this time. I think I'll stop there, and we'll start with some Q&A.

Yes. Thank you. So we will start the Q&A, and we can take the first question. Operator, please.

[Operator Instructions] The first question comes from the line of Klas Bergelind of Citi.

So the first one is on the addressable market that has more than doubled in metrology from SEK 5 billion to SEK 12 billion, which is obviously very encouraging since the CMD. It's increased slightly in DPA. So I guess, Stefan, is this where we should expect more M&A going forward? Are you in the hardware side where multiples are typically lower, i.e., with Cambrio and now CNC in CAM that gives you a very solid platform? Or do you want to do more M&A in CAM as well? Just to understand the moving parts beyond the obviously very strong growth we will have from the base to SEK 6 billion?

Yes, the growth in the design and planning or car market that you have seen, that's simply market growth. I think it changed from 24 to 26, and it's just [ on the overall margin ]. In industrial metrology, our service market used to be only OM agnostic metrology software. Now with DWFritz, we have added high-speed, noncontact metrology hardware for that. And that's why that addressable market has increased. In terms of going forward, I want to say this, you should not expect this pace, obviously, going forward. Maybe it's obvious, but I still want to say that. This number became a little bit extreme from an SMS perspective. But we do expect more acquisitions. But what I expect is that we will, based on the platform we have, be even more targeted, where do we still have gaps that we want to fill. Where do we have bolt-ons to these acquisitions, they will come with [ ideas ] as well, for sure, and also software, more software as well. But you have a point, of course, that we want a little bit of a balance. We're not going to go -- it's not -- we are not a pure software player. We will also be interested in hardware in the right places, whether it's to logistics or industrial metrology. So that's the best...

That's good. And can you perhaps help us with the base growth from the SEK 2.6 billion we have, like if you blend everything you've done 15, 20? Or is that too high? So we get the base right, and then we can back out what you need in terms of M&A to get to SEK 6 billion?

You mean the organics?

Yes.

I don't dare give you -- I need to check here with Louise...

Yes. Sorry. Okay, I'll contact Louise later.

Yes, contact with Louise, so I don't say something regards to it.

No, that makes sense. My second one is on the market share potential from the now continuous cutting offering, if we can call it as. You have the 30% market share in search. You have around 12% in round tools. And as it now seems that you're leading in continuous cutting, is that the concept with the software and metrology offering here? There should be room for some market share on the conventional cutting side. What is the initial impressions on the customers here? And now when you have this full suite portfolio, any live examples that you can share with us? Or is it too early?

I think it's a bit too early with some concrete examples. We'll definitely -- I'll put that no the -- let's say, on the action list because we also need to get approvals and so on for that. But definitely put that on the list to be able to provide you with some true use cases. I can say the one that have closed here -- I mean, most of these acquisitions aren't closed yet, with CGTech, we have seen, I would say, a very positive momentum from the collaboration and joint efforts between Sandvik Coromant and CGTech. And it's both -- it goes in both directions. Of course, in this case, Coromant and SMS has a much, much larger customer base, so they can introduce the software suppliers. But also giving a new dimension to the software providers here to bring with an even deeper expertise in machining. And I would say the reactions have been very positive and in a way, exciting, but finally something new happens in this industry. But that has the potential to take productivity levels to another level. It's still very, very early days, of course. But I'm encouraged by what we have put down in sort of as a strategy perspective, of course, in dialogue with customers and so on, but now we really show it. In reality, the reactions have been very positive.

Our next question comes from the line of Daniela Costa of Goldman Sachs.

If I could ask 3 questions, please, I'll ask them one at a time. But first, I was wondering if you could give us a little bit more kind of background on the process? Was this like they were just discussing with you? Was there a competitive process, I think, on the Cambrio or one of the calls before you had kind of given some hints at where were valuations going for these type of assets, given a lot of other companies are also looking at this space? So that's my first one.

Yes. I cannot give a 100% answer since I don't know exactly what the other -- what the seller have done, so to say, of course. But I would say, in general here, these processes has not -- it's not been -- I can say this, it has not been auction processes in the traditional sense. Some of these companies, especially family-owned companies, they care a lot about where the company will end up. And in this case, I know it's been very important for the selling family to find a company with deep roots in manufacturing with a cultural fit. So it has been a lot about finding that fit between the organizations. And it's been a strong fit. So I would say that's been the key enabler here. This is a company that receives offers every quarter, more or less. So we are -- as you might see, are extremely happy and pleased about this. I think there is a trigger point, of course, that there is a consolidation in the industry. So I think that probably make some companies start to think about the long-term future. But in that process, then they have been looking for a partner that they believe can make the company successful for the sake of their employees and heritage, so to say, also in the long term. So we are happy to work with them on that.

And in terms of the valuation point, I think you mentioned it on the last deal-related conference call...

Just call it a normal software multiple, if that's an expression that still works. But I would say this is -- I don't think it sticks out in any way.

And then I mean you just mentioned cultural fit, and I thought it was interesting the commentary you had before about letting these companies be a little bit on their own for the beginning. But I was wondering if -- on that, can you mention on sort of what measures have you implemented to kind of strengthen retention of the people because I guess it's quite different to work and to be kind of motivated on software-type compensation schemes versus more industrial to -- more traditional industrial way to compensate people. Can you talk a little bit about that angle of retention, how different the compensation scheme for the people that are on the software part of the business will be?

Sure. And this is one of the reasons why we want them to not be, let's call it, fully integrated into all our -- everything we have because that includes that they have more freedom in terms of compensation schemes as well as an example, whether it's sales commissions or management incentives and so on. Then we also do put in most of these cases. It depends on if there is an earn-out component or not, then you have it built in. But otherwise, we -- case by case, we put various retention schemes in place, depending on what is needed, so to say.

And then finally, just on the margin potential, you mentioned 20% for these businesses, which is a little bit below where the whole SMM division has been -- is now and is on the forecast by consensus. Do you think -- do you see 20% has kind of the run rate? Or is there a potential upside to that in your view sort of what type of ultimately margins would be feasible over the long run?

Now over the long run, if we look beyond this period, I think that there is, for sure, upside. I mean many of these companies have a margin that is substantially above, but then we also have emerging businesses that we are investing in. I mean, we are going into new space here. Eventually, all of these should have been mature -- or reasonably mature businesses and all should be carry or delivering on the margin targets themselves. And then the average will be definitely higher based on that we have high-margin businesses in the mix shift. So this should be seen as a milestone on the way. But definitely, longer term, there is no reason why this business shouldn't be more profitable than SMS because these are software businesses to a large extent, with very high gross profit margin. But again, we are investing a lot, and there are a number of investment businesses also in SMS, as we speak.

And our next question comes from the line of Sebastian Kuenne of RBC.

A few questions from my side. First, I would like to understand or basically take a step back and understand how the distribution works. So who is your -- who is the customer of CNC Software? Is it the machine operator? Is it a machine part at a large company? Or is it the CNC machine manufacturers? Or do you have license agreement? So my first area of question would be, how does -- what's the sales channel? How does -- how do you make money with these systems?

Thank you. And I'll let Mathias jump in here to answer.

Yes. Thank you, Stefan. I think most of -- as you say, they have an indirect sales model, so they work through distribution. And the end user is often manufacturing workshop or the likes. So they require a license and then basically buy a license and maintenance agreements. So that's the standard business.

Okay. So the software would work on any machine -- it's machine independent, CNC machine independent. Is that correct?

Yes. What you do is you take a -- create a 3D drawing and then you take that 3D drawing into the CAM system and the CAM system would generate code, G code, that then will tell any machine how to operate or how to machine the part. So that's a simple way of describing what they do. And just to add that what some customers then do, but still far, far from everyone would be take, for example, CGTech VERICUT and then run it through another step where the code is being optimized for a specific machine. But that's still...

Yes, because that will bring me to the next question. I checked some of the large CNC-machine manufacturers and only for very few have found Mastercam as a partner software company. So even DMG MORI, I could not find Mastercam. I found a few others like Siemens NX and what is the other one they have, I think they have an in-house [indiscernible] system. So I find a bit strange that the large machine OEMs don't seem to have you as a partner yet. So that will bring me to the next question, what is your market share? You say you're the large -- or Mastercam is the largest in the market. But is the largest 3% market share or is the largest 30% market share?

Yes, a couple of comments there. I don't think we can answer to the specific examples you have other than that, of course, the most machine tool builders are trying also to be fairly agnostic in the initial phase when you might have partnership and collaborations. But of course, no one wants to limit their market, so to say, unnecessary. In terms of market share, I don't think we can be too specific. But overall, we will be above 10%. And that will put there with the -- in one of the leading positions.

So given that -- and that -- so perfectly switch to my next question, given that the machine makers want to be independent of the software and want to have open source as possible, open access as possible. Why would it make sense to buy a CAD software company, a CAM software company, simulation software company, verification software. And if you can't package this into 1 big product because the customers don't want it, they want to pick and choose. Why do you think it's a good idea? I mean I'm a bit devil's advocate here, but I kind of see why it makes sense to buy software businesses. But I don't quite understand this, how you can scale up on this, right? Because if I run a big DMG MORI machine, and I have 5 different brands to make my CAM software and 5 different brands to run my CAD software and 5 brands for simulation, why would I all choose it from one provider? What -- because it's all open source, right? So it's platform independent. So what's my benefit as a user to have everything coming from Sandvik? I don't quite understand that yet.

Yes. So I can answer that. First of all, we also have, and it was in the presentation here, a strategy that this will be agnostic. You have to do it like that. Ultimately, the customers choose. And we cannot and will not force anyone into some kind of closed ecosystem. So our cutting tool brands, they will work with machine tool builders, CAM software providers as an example, and they will continue to do that. CAM vendors do the same in all dimensions, so to say. EasyTech works with various CAM providers and machine tool builders and cutting tool providers, et cetera. So everyone does that. We will continue to do it as well. That does not mean that if you can offer a full suite, you can make your components when they work together more seamlessly integrated, provide more value in terms of even more optimization, less waste, et cetera. There are many dimensions to this, select the right tool and so on. And of course, if we can do that in a good way, the end customer -- a specific end customer will definitely have an incentive to select maybe 1, 2, 3 or all of these parts of the value chain from Sandvik. But we will not force anyone to do it. It will be up to us to provide enough value in this value chain. That's the strategy.

But eventually, 15 years from now, you want to become a dominant player, I would assume, do you have kind of a path to get there? So being agnostic, yes, but kind of squeezing out everyone else one way or the other, is there -- not that you tell me that strategy, but behind closed doors, do you discuss of how you can keep the software open, but still dominate every part of that tooling software chain?

I wouldn't use those words. What I would say is, as I said, we will be fully agnostic, and we will not push anyone out or anything like that. The only way to do this successfully, I believe, and this, I think, is the same in any industry, at least, it's the same as the security industry that I have experienced from that. You -- in a software -- increasingly software dominating world, you typically need to take more than one place in the value chain, which means that you will both compete and collaborate with specific other companies and everyone understands this. And if you don't dare take this step, you will become commoditized and you're going to be one of the losers. So you need to dare taking these steps. But to be successful, you also need to be fair and agnostic. And then by providing positive added value in your own solutions, that's how you gain market share. And of course, nothing stops anyone else from doing that as well or to copy that. But I do think -- if you are early, if you are a first mover, you have an ability to create an advantage that is difficult to catch up with. And I do think when you have some -- several of these steps in the value chain together, you can just be faster with more learnings from customers. So you can always be a step ahead, even if you don't stop anyone from doing the same. And I think that's how you -- this is the only -- the only sustainable competitive advantage today is to be faster than anyone else is that you cannot use other blocking vessels that doesn't work in the long run because we need happy customers and satisfy customers. And they will see immediately -- especially if you have a strong position, they will see if we try to use that in, let's call it, a negative way. They will only accept it if we provide more value to them.

Yes. Final brief question. Do you plan to kind of introduce the Sandvik brand for Mastercam and Cambrio and CGTech to tell the customer, "Listen, this comes from the same mother company, and it's more seamless to use these 3 technology or 3 software platforms." Do you plan to introduce this Sandvik brand for those or not?

We will have to come back on the branding strategy here. But I would say, eventually, in some way, we will have some kind of, of course, soft endorsement. But when and how, we will come back on that.

Just to underline on that, I mean, these are very strong brands, and that's the way we will continue going to market.

And our next question comes from the line of William Mackie of Kepler Cheuvreux.

My first question would be to understand your perception of the market particularly when we talk about the CAM market, how would you -- you've described the overall size of the SEK 26 billion addressable for new products in design and planning and SEK 26 billion in service. But when we go into the CAM market, how would you describe it with respect to the level of consolidation or fragmentation in that segment where you've made these 2 acquisitions? And when you talk about the consolidations happening fast, what would you perceive us or who do you see as the main consolidators beyond Sandvik in the marketplace? Where is the competition for the assets that you've been acquiring?

Yes. Thanks. I can answer that. I would say, now, after this, there are, you could say, 5 players that are, I'll call it, roughly equal depending on what I mentioned you look at. And those 5 will have well over 50% of the market, maybe 60%. And these are well known. I mean it's Dassault. It's Siemens. It's Autodesk. And it's Hexagon. And with these acquisitions, we can put Sandvik in that same category. And then again, if you look at the installed base, we believe we are now at the top. If you look at other revenue, we are not leading. There are others that have more or less, call it, high-end offerings, so they have more revenue per seat. Then the rest of the -- and by saying that, of course, that's also -- amongst some of these, you will also find the competition when it comes to the consolidation. Maybe some of them have been less active from the acquisition front. They have more of an organic strategy and some have been more consolidators in the past. Then the rest of the market, I would say, it's quite fragmented. There are a handful of companies remaining that are probably interesting from a consolidation point of view, and then there is a lot of smaller players after that. But I think it's difficult to find really a scale in the software business with. So having said that, I also should say that we are, of course, different than these other competitors because we have a base in manufacturing and machining. So we think we will be able to provide a very unique advantage. The pure software players will, of course, say that they have a wider software offering, which is true. So it depends on what the customer is asking for or want. But if you -- customers that want a partner that knows machining better than anyone else, then we think we have an advantage. And also, what I'm saying with this is that I think the window for any of our traditional competitors to copy or to try to catch up here is getting very, very slim. Because with Mastercam, I think this was the -- it was the best brand still out there. And you can, of course -- I think anyone that tries to repeat it now will end up with a little bit of a niche position, which is not necessarily a winning approach in the software business. So I think with this, we have a first-mover advantage that I think is going to be a little bit difficult to -- for others to catch up with.

My follow-up related to that is how do you see or how do you envisage the industry evolution because as I think the CAD designer or the engineers and designers are creating the 3-dimensional images in CAD and the software companies producing the CAD or integrating their CAM offering to transition and transfer that directly into relevant machine code, which can then be dropped into the machine PLCs and run the machines. You're coming from the bottom up along basically from the cutting phase back up to the machine CNC coding. But do you see in the industry -- I mean, it seems that it's more natural to integrate the CAD and the CAM offers together and become a single provider for the customer base, the machine operators. So how do you carve out the differentiation because there must be a delineated change between actually the coding on the CNC machines and the hard cutting, which is different. That's what I think one of the earlier questions was trying to understand. Do you understand the question?

Yes, absolutely. And of course, if you ask one of the major CAD players with the CAM offering, they will say that that's exactly what they think will happen or what the strategy is to make happen. But we -- and there will be customers that will be looking for that. And maybe typically -- I mean, if you do a more simple part, for example, maybe that's good enough. We -- and in theory, I think this looks great. In practice, this is super complicated. When you take that part and you want to optimize the part with an almost endless combination of cutting tools, machine tools and different ways of doing it. So you need very specific expertise. This is why, as I said, for example, not even most CAM providers also have an optimization of verification engine, but none of them are still nearly as good as we have in CGTech VERICUT. So even that step is so complicated and unique with -- so I mean you need to do this for machine tools that have been out there on the floor for 30 years, 20 years. And the amount of -- again, the amount of cutting tools you have to choose from is endless. The theory is great. In practice, we believe the opposite. But you need machine-cutting tool specific expertise to do this in a good way. That will have to be inserted. And maybe some of them will go to the length to get that as well. But I think or we believe and we can even see that, if you are in the CAD space, you can choose to dig down to this niche, let's call it, a SEK 26 billion market or you spend your resources on completely different areas where 3D modeling and growth is much bigger and growing faster. Yes, we believe that being a specific in this niche and being the experts here is going to be the winning concept. At least for a very big portion of the market, and that's the one we are addressing on that.

That's really helpful. Three quick follow-ups. Firstly, was there any relationship between Mastercam and Cambrio? Secondly, the 2 deals you've announced have been in the U.S., what is the opportunity within Europe? Or is that space taken up? Those are the first 2. And the last one relates to the other machine tool players. I mean we know like ISCAR or Kennametal, do you think this strategy you're following makes you a clear differentiation from their wider offer? Or do you see similar actions by those direct machine tool players?

On the first question, no specific. Or maybe Mathias, if I'm wrong. I don't think there was any specific relationship between Cambrio and Mastercam.

No, no, correct.

On the geographic question, yes, I mean, it's maybe a little bit of a coincidence. We haven't specifically targeted the U.S. Let's start there. There are, of course, opportunities in Europe as well. As of now, this is an opportunity we bring it to the table here from an organic perspective. If you take a Mastercam, it's a little bit the same with Cambrio, but in particular, Mastercam and also CGTech VERICUT, they have a strong presence in the U.S. What Sandvik can bring in terms of our customer relationships in Europe is, of course, an opportunity to help them expand into a customer base in Europe organically. Then if there are inorganic opportunities that come, we will, of course, not -- we will, of course, entertain those discussions as well. In terms of our competition in our core business, that's what I said. I mean it's -- I mean there's still an opportunity for them to follow us here. But I think it's very, very difficult now to reach the scale we have achieved in the past 12 months in the few acquisitions we have made. I think it's basically -- I would say it's impossible, given that there's going to be competition for all the targets. And if you buy just one, if you buy a player with 3% market share, yes, then you have the offering, but you're still going to be very much in a niche position, and I think you will struggle with scale and a global presence. So far, what we see is that they work more with partnerships, which is the way forward. But we believe this is so strategically important and the opportunity we see is so big that we want to be really into this.

So we will take one more question.

And that comes from the line of Gael de-Bray at Deutsche Bank.

The first question I have is, of course, about Mastercam. Given their SME customer base and sort of expertise, I wonder how you see the importance and the urgency for Mastercam to transition to SaaS? And what could be the required investments to do that? And then I have a couple of questions for Tomas, quick ones really. I think on my math, taking all the acquisitions you've done so far, the total M&A spend should be about SEK 25 billion or so in the second half. So I really wanted to check if that makes sense to you. And also, whether you will start communicating on EBITDA rather than EBIT for the group overall from Q3 onwards, so that we could basically see the underlying profitability trajectory of the business?

Maybe I'll start by answering your last question because it was actually a very good question, we should have mentioned that. Yes, so from Q3, we will include EBITDA numbers in the report. You will see the PPA. And that's just to give you the opportunity to see the difference between EBIT and the EBITDA with PPA taken up. We have DSI coming in now and eventually these companies as well. And there will start to be a bit of a divergence between EBIT and EBITDA. So we will give you both numbers and then you can pick your favorite. So that's going to be the case. And then maybe you take the first...

Yes, your math on acquisition spend, you said SEK 20 million to SEK 25 billion. That's approximately right, short answer.

And then maybe I can talk a little bit about the SaaS transformation. I think -- it's definitely something that's been a conversation, both with Cambrio and Mastercam. And I think it's -- we know we have 2 trends or shifts that we have ahead of us, it's both the move to cloud and the move to SaaS business models. And I think what's important for us is that we will need to move at pace with the market. So that's a planning process that already has started, but it's extremely important to do it together with our customers. I think it's hard today to say a date, but planning ongoing, I would say.

Great. Thank you. So now we need to end, although it's very interesting questions. And thank you all for calling in, and we wish you a very nice weekend.

Thank you everyone.

Thank you.

Thank you.

Thank you.