Earnings call transcript: Qt Group Oyj posts Q1 2025 earnings, stock drops

Qt Group Oyj reported its first-quarter 2025 earnings, highlighting a modest growth in net sales and a decline in EBITDA margin. The company’s stock price saw a significant drop in pre-market trading following the announcement. According to InvestingPro data, Qt Group maintains a perfect Piotroski Score of 9, indicating strong financial fundamentals despite current market challenges. The earnings call revealed strategic focuses and market challenges that influenced the financial results.

Key Takeaways

• Net sales grew by 4.8% in Q1, facing challenges in new sales.
• EBITDA margin decreased by approximately 5 percentage points from the previous year.
• Stock price dropped by 16.47% in pre-market trading.
• Revised full-year net sales growth guidance to 10-20%.
• Continued investment in long-term growth strategies and AI integration.

Company Performance

Qt Group Oyj experienced a mixed performance in the first quarter of 2025. While net sales increased by 4.8%, the company faced a decrease in its EBITDA margin, which fell to 17.9% from the previous year. The company noted a soft start to the year with challenges in securing new sales, partially due to cautious customer behavior. Despite these challenges, Qt Group maintained its focus on long-term growth strategies, including investments in research and development and expanding its addressable market for testing tools.

Financial Highlights

• Revenue: Increased by 4.8% compared to the previous year.
• Earnings per share: €0.20.
• EBITDA margin: 17.9%, down approximately 5 percentage points from last year.
• Operating cash flow: €17 million.
• Net profit margin: 10.5%.

Market Reaction

Following the earnings release, Qt Group’s stock price fell by 16.47% in pre-market trading. The stock’s last close was valued at €70.75, and it dropped to €59.10, nearing its 52-week low of €58.10. InvestingPro analysis suggests the stock is currently trading below its Fair Value, presenting a potential opportunity for value investors. The company maintains strong fundamentals with a current ratio of 3.53, indicating excellent liquidity position. This decline reflects investor concern over the company’s reduced EBITDA margin and revised sales growth guidance. The broader market trends also indicated softness in key sectors like automotive and consumer electronics, which may have contributed to the negative sentiment.

Outlook & Guidance

Qt Group revised its full-year net sales growth guidance to a range of 10-20%, down from the previous 15-25%. However, the company maintained its full-year EBITDA guidance at 30-40%. The management expects the first half of the year to be challenging but anticipates smoother market conditions in the second half. The company remains committed to investing in its product portfolio and is actively seeking strategic acquisitions to bolster long-term growth.

Executive Commentary

Juha Aurelius, CEO of Qt Group, emphasized the company’s strategic focus, stating, "We don’t expect this to continue forever," addressing the current market challenges. He also highlighted the role of AI in enhancing productivity, describing it as "a best buddy at work." Aurelius reassured stakeholders of the company’s long-term commitment, saying, "We play on a longer play."

Risks and Challenges

• Market softness in Europe and the US, affecting sales growth.
• Challenges in the automotive, consumer electronics, and industrial automation sectors.
• Global economic uncertainty impacting customer investment decisions.
• Potential supply chain disruptions and competitive pressures.
• Dependence on continued investment in R&D and strategic acquisitions for growth.

Qt Group Oyj’s first-quarter results reflect the ongoing challenges in the global market, with a notable impact on its stock performance. The company remains focused on its strategic initiatives, aiming for improved conditions in the latter half of the year. For deeper insights into Qt Group’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 top stocks with expert analysis and actionable intelligence.

Full transcript - Qt Group Oyj (QTCOM) Q1 2025:

Heliumsa, IR Lead, QD Group: Good afternoon, and welcome to the QD Group’s First Quarter twenty twenty five Results Presentation. My name is Heliumsa, IR lead. And with me today are CEO, Johav Aurelius and CFO, Jone Lindtunen, to present the results. After the presentations, we will first have questions in the room. And if time allows, then we’ll continue with questions on the lines.

But please go ahead, Juha. The floor is yours.

Juha Aurelius, CEO, QD Group: Thank you. Good day, everyone. My name is Juha Aurelius. And like said, I’m going to go first the business highlights, Joni, then on financials and then the outlook for the rest of the year. So, if we look our quarter, our net sales grew only 4.8% and of course that was a disappointment.

We were expecting quite a bit more, but the challenge was the environment was very challenging for us. Our EBIT margin EBITDA margin was 17.9%. And well, we’re not our EBITDA, Jorni will talk about it more, but of course our EBITDA goes very well hand in hand with our revenue because we’re a product business. So, given on that, we are not it’s always a question that are we going to be reducing our investments for the future. And the answer is no.

We don’t do such decisions based on one quarter. So what we saw during the quarter, if I look on an overall perspective, we had softness more in Europe and U. S. And less so in Asia Pacific. So in APAC, we were doing better and the market was not that soft over there.

Overall, if I look on the renewals and how people were renewing, they were renewing pretty much on the same ratio as they’ve traditionally have done. So people that have one year licenses renew one year and three year licenses three years. So we didn’t see any big impact over their change. However, we did see people being customers being cautious. They were very cautiously looking at how many licenses they need, how many they want to renew.

And on new sales, we saw a lot of uncertainty. We are on R and D and R and D based projects are usually that the those you have a bit of a timeline that when to invest and when not to invest. Whereas if you have a project that’s already in production then it’s going. But on R and D where you start new projects there is always a bit wiggle room. So, some senses, we saw a lot of uncertainty and we saw that in pretty much on all our revenue streams.

If I look on acute market, we did see a of course industries like defense and medical, they’re doing a lot better in our automotive market. The market is very challenging in the Western markets, whereas in China not so much. And on consumer electronics and industrial automation there were cautiousness as well on decision making. So we do have some industries that are doing globally well and then we have a whole bunch of industries where this uncertainty is affecting. Then if we look on our testing market, which is the we talk about QA market testing, software testing, that was going on pretty much as planned and kind of makes sense because that goes more into the production.

So that is when there is already a software and it needs to be tested. So that’s the that we didn’t see that much effect on this market uncertainty over there. So basically people on some industries are waiting or pushing a bit forward and the decision making is slower on starting bigger projects on specific industries. So in some industries like I said on defense there are no delays whatsoever. The if I look the if I look and compare this into COVID, I kind of see the COVID times then we saw an immediate stop.

I mean we saw factories closing down and whatnot. So this is not something like that. But we see a bit of a same behavior and same sort of the cautiousness over there. And so I think that if this continues say a bit longer this situation, we kind of rethink that we may have we may see similar type of the environment where when the demand starts picking up again that then there is a shortage of some parts and the supply chain disturbances, because the supply chains are very long at the moment as we know. So to build a product, the parts are coming globally here and there and now then the investments are slowing down and people don’t know what’s happening.

We think that the first effect we’re going to be seeing is the problems in the supply chains in that respect. How long do we think that this is going to last? Well, now we know that the all the tariffs are on a 90 pause sort of say that the June 1 or July 1 should be that the that’s the end game. I think that the uncertainty will start clearing out once we start seeing that where we’re heading then the things will clear out. But definitely we’re expecting that our first half is going to be in that sense the situation will continue.

We don’t expect this to continue forever. And well, that’s more of a future outlook when I talk after Joni, but we don’t expect this to last more than a few months, because at the end of the day the all the products and services our customers are building eventually they need to build them. It’s a matter of that the when do they start and on what volume they will be doing it. So, like I said already in the beginning, we will continue our long term investments. So, we have the same plan that we’ve had and we’re looking like three years ahead that the what we’re going to be doing.

If I now look currently, obviously, we are on a percentage wise investing more on the quality assurance because it’s a smaller business for us. We acquired two products and we’re putting there more efforts on R and D and the sales product management marketing and so forth. But we continue our investments on Q technology as well. So, in that sense, we don’t see any changes on longer term growth. We haven’t seen if I look the overall the market, we haven’t seen any increase on our churn rates.

Our churn rates are pretty much the same than they traditionally have been over the ten years. We haven’t seen any new competitors or competing technologies or such. So in that sense, we don’t see on the in the market, we don’t see any changes on demand nor on our competitive situation at the moment. So basically all disturbance we have is the market turmoil around us, which is a bit different in different regions. We had personnel March ’8 ’80 ’8 million And the that’s well that’s going to increase again during this year.

And I think we’re going to be close to 1,000 when the year ends or around €1,000 give or take. With these words, I’ll give over to Joni, and I’ll continue with the future outlook after him.

Jorli Lindonen, CFO, QD Group: All right. Thank you, Johann. My name is Jorli Lindonen, CFO And welcome from my behalf as well to the earnings call. I’ll dig into a little bit deeper in the numbers by going through the income statement and then some words about the balance sheet.

And as we saw, the net sales was growing by 4.8%. We get a little bit of tailwind from FX by EUR 600,000.0. And at the same time, we have been you remember, we’ve been transitioning from the like perpetual license mode into subscription during past four, five years’ time. And now from now on, we are going to be seeing the maintenance bucket growing pretty much aligned with the license revenue growth going forward. Obviously, there will be some quarterly fluctuations as well on that.

Our Materials and Services, we see a growth of €400,000 and that’s driven by the some consulting projects for which we used more external resources than compared to like a current like general run rate. And there’s no kind of a major in some projects, we level our resources by using external consultants, and that’s kind of one way of mitigating the margin for us when the volumes fluctuate. We grew, as Juha said, by roughly 20 people employees in Q1 by 82 year on year in twelve months’ time, which is pretty much a run rate we’ve been seeing for two, three, four years as well. And this is very much aligned with the headcount increase or personnel expenses increase as well what we see in our P and L. And we are putting selective investments in place into specifically into quality assurance testing business, primarily into R and D, marketing and sales.

And then we are well, one of our targets is new customer acquisition. And then as well, we have increased some headcount in our ventures team for kind of new opportunities. Depreciation, slight increase, and that’s driven because of some extensions of the rent agreements and the expansion of the space, no major difference in that. And there’s a little bit of offset in the other operating expenses on that. And then other operating expenses, pretty much proceeding or developing as planned, plenty of effort into marketing, into R and D, third party project execution and so on.

Also, we have recruited quite a few employees as well at the same time, which shows here if we use any external consultants. So this leads us to EBITDA margin of 17.9%, down by close to five points from around 5% from last year’s. No change, obviously, in amortization, which is coming from Froglogic and Akcevion acquisitions, which then brings us to €6,500,000 EBIT earnings before interest and taxes result. There was a slight negative item in financial expenses, and that’s driven pretty much because of the negative USD development in our terms. Our effective tax rate was somewhere around 20.5%, which the current setup is where it’s supposed to be.

The net profit for the period is 10.5% and EPS 0.2 Similarly, quite limited changes all in all as well in the balance sheet side. Well, we are collecting the funds from like last quarter bookings from last year’s, which shows in operating cash flow, which is pretty much same magnitude as last year’s €17,000,000 for the first quarter. And then the other kind of asset buckets, we do see overall the pretty consistent development on trade receivables and contract assets, which both are kind of accounts receivable buckets towards our customers. Trade receivables, obviously down because of the first quarter revenues being lower than last year. The same time, we saw a reduction in the contract assets as well by €1,300,000 in Q1.

Very little changes in equity and liabilities side. I guess worth mentioning probably 800,000 interest bearing liabilities going up. That’s because of these liabilities we have increased now and there’s an offset on the asset side then at the same time. But I think that’s the most topical items from the financials. So I will hand it over back to Juha to go through the outlook and guidance for the year.

Juha Aurelius, CEO, QD Group: Well, I was already touching a bit on this. Well, the long term prospects, they haven’t really changed the number of displaced devices. They will be growing and the growing AI will be generating more software to be tested. So that’s not going to go anywhere. To give a bit more light, I think that the first of all in general this our product portfolio where we offer a test software development and testing that’s a very compelling offer and that resonates very well.

So, we can sell our testing tools into Qt commercial users and also Qt open source users. And if we look the other way around, if we look our competition on a testing side, they tend to be offering services for developers. So, this combination of developer and testing that’s a good strategic move and that works very well. On our testing, we further we increased our addressable market because with our test tools you can use them also on Windows Java, so other languages than Qt only, so the addressable market is bigger. So we see over there, like I’ve said many times, that our testing business is like Qt two point zero, so it has a long, long runway to grow going forward.

And we see that our products are very good over there. AxiVeon on the static code testing. So during the development, anti architecture testing will be needed even more. And on functional safety solutions, Akcevion is a very, very good product and we see a pickup over there the on these segments going and that will increase going forward. Squeeze on the other hand on the automating the user interface testing and automatic code testing, there is a very growing market.

So we don’t see any changes over there. Like I said on the Qt, we don’t see from a competitive point of view there are no it’s pretty much the same. And the feedback we get from our product and from our users is that the product is very good. So in that, we do see no changes. In going forward, I think that the for some of our customers specifically the ones that are having manufacturing business that they’re selling their products either to APAC to China market or

S. Market there is a great uncertainty that where what’s going to be the cost, how big of a volumes they should be expecting and where all this is going. And that uncertainty I think will last at least until the summer maybe even further. But the at some point, of course, uncertainty has to go away and when and people have to make decision in this uncertainty anyways. It affects specifically in our case, we do have 70 industries.

So it does not affect all of our industries, but it does affect. So, example, the automotive industry is in some challenges on the Western part of the world, also The U. S. Manufacturers. We have the over there, it’s not only that where do you manufacture, but in car manufacturing the supply chains are very long.

So the parts are coming throughout the world. So that alone will increase the cost plus then there is tariffs on the end user product. So that is one of the challenging industries we have. The industry automation a bit challenging consumer electronics of course depending on what products we talk about. And then like I said on medical and medical devices on defense and whatnot very little effect if none in that sense because everybody is investing all they can and there is a great demand for their products at the moment.

So what is our guess now is that this or our estimation, well, I mean everybody knows that this situation has been very fluid. It tends to change day by day. So in that sense, I mean, it’s very hard to make scenarios where it’s going. I think that at the end of the day, things have to things market will just force things to start getting a bit clearer as we go towards the summer. And the uncertainty will be less.

Also at some point our we need to start making decisions even in these uncertain times because business needs to continue. So in that sense, I think that the first half will be a bit of challenging. But the second half, we do expect a bit smoother ride when it comes to a market. Jorni was there mentioning on our profitability. Well, it’s obvious when the revenue comes down, our profitability comes down because we don’t adjust our investments or our costs based on the quarterly fluctuations.

We play on a longer play. And there we do see lots of runway for both Qt and for our QA products to continue to grow. What comes on the M and A? We do actively look for acquisition targets. And we don’t give any time line guidance because the deals will come when they come.

But we do still see that our we do have a very unique position because we do have our own local sales offices throughout the world. And we have Fortune 500 companies that are spending a lot of money on software development, R and D, so that we can add value and we can bring more efficiency to their development processes. That’s basically what we’re looking when we’re looking to acquisitions. So we’re looking to buy new products into our portfolio. We’re not building a portfolio of businesses to add revenue instead we always look products that would add synergies to our whole offering.

Well, it’s kind of our disclaimer that weakening of the global economic situation may also affect the solvency of companies’ customers. I actually don’t see that a huge risk in our case because we deal in very, very big companies mainly. But of course that’s for some smaller companies is a possibility. So, we changed our net sales growth to 10% to 20%. And why the 10%?

Well, basically we’re like I said the first half of the year will be is going to be a tough. So, I think that the 15% to 25 and do we have a plan to be on a 25 that looks challenging at the moment. Do we have a plan to be close to 20? Yes, we do. So, the if the things don’t get totally out of the loop, sort of say, then we do have a path to be on a 20.

And are we do I feel confident that we’re going to end somewhere in between? Yes, definitely so at this point of time. And the our EBITDA on that is going to be between 30% to 40%. And that’s of course driven very much on the fact that the how do we generate revenue. To give you a bit of an idea how do we plan is that we’re going to be looking probably next month already, we’re going to be looking into that what is the what’s the rough revenue we’re looking next year and where do we roughly think we’re going to be.

And we start hiring those people already during the second half because for example salespeople, if you need a certain amount of salespeople for 2026, you need to hire them in 2025. They need to be onboarded. They need to be up and running so that they are already there. So that’s kind of the gives you an idea of the timing of our business. So we need to think already now that what is the investment level for next year to make next year wherever we want to be.

So that’s why the that’s kind of the scale. So in a sense, slow moving business. When it comes to new customer acquisition, that’s also a slow moving business. So usually, we, from the first meeting, six months to make a deal with the first customer. And usually, first customer deals are small even though the company is bigger and then they start expanding the usage.

So in that sense, it’s a we always take a look like a three year view, one year ahead view all the time and we make our investments based on that to give you a bit of a highlight. Why did we change the 15% to 10% on a lower end? Well, that’s basically that we see a lot of turmoil. And where we are at this point, I think that the lowering the lower end makes the that’s a more feasible estimation at this point of time. So with that, I say thank you.

And then we have lots of our customer logos over there. And Matti has a Carnegie question number 1a.

Matt Regan, Analyst, Carnegie: Good afternoon. It’s Matt Regan, Carnegie. Just getting back to Q1, could you explain what happened in Q1 actually? I think most of the market participants were expecting that Q1 would be fairly normal for you still because in Q4, you said that there would be some postponed deals having a positive revenue effect on Q1. Now obviously, if that happened, then of course new sales must have been extremely poor.

So what was kind of explaining the so small growth in Q1? Yes.

Juha Aurelius, CEO, QD Group: Well, on the slip deals, you always say on each quarter that there is a slip deal because there is always a slip deal. So, when I look the quarter, there is always the if I look the pipeline and I look the pipeline, I have kind of my hand figure that how much we’re going to close and what percentage is going to go forward, right? So the slip deals, there’s always on each quarter there are slip deals and then they close on the next quarter for whatever reasons. Then the other is that the we usually have the well first third quarter are usually a bit slow. Second quarter and fourth quarter specifically are very big quarters.

And first quarter fourth quarter is a really big one for us. So that’s kind of the seasonality. And then on each quarter what we see is that the first ’2 quarters are very slow and January is usually very slow traditionally. For some reason people close a lot of deal on the fourth quarter and then the first quarter people get back to work and whatnot. So January is usually very slow and then it starts picking up.

But that’s each quarter is like the last month is very busy and the last two weeks are very busy. That’s where we make most of our business on each quarter. Why is that? I don’t know, but that’s always been the case that it’s very back end heavy. So what happened this year, you’re absolutely right.

We had some deals coming over from the fourth quarter. We had consulting coming, finishing consulting we started on the fourth quarter. So all that was in there. And so in that sense it went okay. But yes, the new sales was the and renewals were okay.

They were pretty much on plan. So the new sales towards the end of the quarter, yes that was slow. And we all kinds of reasoning, that was basically slow. If I look into there, do I see that projects being canceled or projects being deleted or whatnot. I don’t see that behavior in our customers.

But no decision making, slow quarter. You can always of course think that should have been have been should have we been able to do better? Probably yes. We’re should have been we’d be able to close better. Then on the other hand we have we’ve been in this business for ten years or longer.

So the of course, you can always operate better, but the new sales was really suffering. It was slow. And I if I look now, well, obviously, again on the second quarter April is slower, May is slower and then June is really busy. And the last two weeks of June are really busy and that’s where the result for the second quarter is made. But the if I look now, yes, I do see some slowness still over there, yes.

Matt Regan, Analyst, Carnegie: Okay. And then when you said that testing and quality assurance business was roughly meeting your expectations, doesn’t that also mean that then the rest of the business like QT ecosystem, developer license sales and also distribution license sales, they must have fallen to negative? And could you just clarify which of those? I mean, is it the royalties that are coming heavily down? Or is it the new developer license sales which is coming heavily down?

Or is it both?

Juha Aurelius, CEO, QD Group: Well, I would say that, yes, it’s yes, we see a slowness on new developer license sales, yes. Yes. So, all in all, that’s where we see a slowness. Yes, absolutely. So we see that the I would say that we see on the kind of a hesitation that the let’s wait a little before we kick off, right?

That’s what we see.

Matt Regan, Analyst, Carnegie: So basically, you haven’t seen that kind of weakness or softness in the distribution license revenue

Juha Aurelius, CEO, QD Group: No, no, no, not in that no, not that big, no. But of course, this is the going forward, so when we give this guidance to 10 to 20 that’s my expectation is that the that’s where we’re going to see softness as well. Growing softness, let’s put it this way, because obviously, I mean, the economy is slowing down basically. That’s what’s happening now.

Matt Regan, Analyst, Carnegie: All right. Then my final question is related to the margin guidance. You kept it at 30% to 40%. And it because you think that some of the growth investments that you have been planning for this year might not come as large as you perhaps considered in the beginning of the year because if you have a lower top line outlook on in which you are investing in next year? Or is it other costs that you can manage?

Juha Aurelius, CEO, QD Group: Well, I think that the well, as we’ve looked into it, as if we get the revenue in as we are foreseeing now, the top line will take care of the EBIT basically. So I’m not expecting that I have to start cutting down on any on our growth investments really on our second half. So the second half revenue will get us. As you know, our fourth quarter EBIT will be way over guidance, I mean the overall year guidance as it is always like our fourth quarter EBIT is EBITDA is usually very high. And so that’s what I expect to happen this year as well.

Matt Regan, Analyst, Carnegie: All right. Thank you. That’s all from me.

Jakot Urbainen, Analyst, SEB: Jakot Urbainen from SEB. I could follow-up on Motti’s discussion about the Q1 performance and just to confirm and clarify that you didn’t see major changes in renewing rates. So all the licenses that were coming up to renewals, those were renewed? Or did you see customers renewing perhaps a bit less?

Juha Aurelius, CEO, QD Group: Yes, I did, yes. Not very many customers. But so customers are renewing, but it used to be like that the customers renewed whatever they had, right? And now customers are looking very carefully at how many do we need. Well, to put this into perspective, like 99% of the customers need whatever they already have.

So I see a very little customers that are taking less. So our renewal business is pretty much where we expect it to be. But what do I see is that the I see like in COVID that the CFOs are starting to run the business. So the CFOs are looking that the hey, we need to have we need to be cautious on cash flow. We need to strengthen our cash position and we need to be tied on costs because who knows what’s coming, right?

And that’s what we see. But then in, like I said, maturity, like almost all of our customers, they renewed what they had. They continue in their plans. And that kind of makes sense because if you have something in production, it actually doesn’t matter what’s going to happen, right? I mean you’re going to produce whatever you were planned because you already have all the parts coming in, you have all the factory facilities, whether you do it on your own or if you’re subcontracting and whatnot.

So if you have something already going, you’re going to continue no matter what and then you hope that the best will happen. That’s basically a bit of our if we take a global view and forget Qt for a moment, that’s a bit of our problem because China is producing a lot of goods. They were thinking selling into U. S. And those will be done and they’re going to go somewhere else.

So we might have a whole bunch of very cheap Christmas gifts, toys in this year over here. So and that kind of adds on the equation what will Europe do if we start seeing a big flood of Chinese products coming into our market? So that’s what we see on our renewals business that people are continuing. What we see is cautiousness into that, hey, if we are now to kick off a new production on what volumes and can we postpone that decision a little? Well, we know for a fact that these decisions can be postponed a little, but they can’t be postponed like a year.

We don’t see also we don’t see cancellations. So we just see that people are a bit hesitant. And that kind of makes sense too, because if you’re in the business of making TVs, you’ve got to have a new model next year as well. It’s just a question that on what volume.

Jakot Urbainen, Analyst, SEB: Okay. And then another confirmation. Did you say that your distribution license revenue grew in the first quarter?

Juha Aurelius, CEO, QD Group: I said that it was pretty much where we expect it to be. And I think that the we’re going to have more challenges on the distribution license sales as we go forward. So in the first quarter, we didn’t see that much on the distribution license revenue was where we were expecting it to be. I think that we’re going to see more turbulence around that as the year goes further depending on how this environment is developing. So the softness we see was on the developer license sales, yes.

Jakot Urbainen, Analyst, SEB: Okay. And in your thinking regarding the guidance downgrade, how do you split that between developer licenses and distribution licenses? Will it do you think that distribution licenses will be impacted more than the developer license sales?

Juha Aurelius, CEO, QD Group: No, I don’t. I at the end of the day, I think that for this year the distribution licenses we’re going to be getting of course, there is some pressure downwards, but the utilities products are already in production in development and whatnot. So they’re going to end up somewhere. I don’t know where, but they’re going to end up somewhere. But of course, there will be pressure on that one as to.

So basically if you think of that guidance how we did that was that the well we pretty much know the bigger deals that we are we see for this year. And then we see our pipeline and we see that how much pipeline we develop per week basically and those ratios. And then we look now that we saw the first quarter where it ended up and we’re looking at the second quarter and the whole year, we kind of felt that the so there is quite a lot of deviation still because there is so much uncertainty. But we kind of felt that keeping 15 to 25 did we see the did we see that we can get into 25% after slow start of the year? We felt that well that’s not feasible anymore, right?

We felt that the keeping a 25% guidance given this low start in the year would be kind of a bit unrealistic. So we were looking that are we if all the stars are aligned and everything goes very well, can we be close to 20%? Yes, we can. Yes, right? And so and then if the well, are lots of these English impressions that what if things go wrong, which is also the possibility.

The we looked at the can the 15 be in pressure? Sure. So then we kind of felt that well 10 to 20 guidance is a fair guidance that the given the slow start of the year. But that’s where we are at the moment. So I don’t see of course, I’m not happy for the first quarter.

I mean that goes without saying. Do I see that this year as it is now? Do I see that this year is going to be a disaster? Well, no. Do I see that we have to or do I see on a three year path that the are we going to be on the long term targets where we think we want to be?

Yes, I think we can get there. Is this year going to be kind of a disaster? No. Is this year going to be a bit of a not so good year? Well, that’s what it looks like now.

This is going to be a not so good year. It’s not going to be a total disaster and it’s not going to be where we want it to be, but that’s how it looks now. Given that the things don’t get any worse than this and I mean the first one hundred days of this year, I mean, whatever can happen.

Jorli Lindonen, CFO, QD Group: So it

Jakot Urbainen, Analyst, SEB: seems, if I may still continue on the in Q4, you said that there were some material deal postponements, and you previously commented that you are perhaps expecting this to take place in the second quarter or in the third quarter. What is your touch now on these deals? Are you seeing risk of further postponements or reductions of the scope or even total cancellations of

Juha Aurelius, CEO, QD Group: these We haven’t seen cancellations really. I mean, of course, sometimes you have one or two here and there. But I mean, in general, in a big scheme of things, how many deals we have many transactions we have. I haven’t seen a big cancellations, not at all. The reductions, yes, to some extent we see reductions.

And very much now, I do actually expect that the on the first half of this year, we’re going to see reductions. So people will start their projects, but they will start smaller than they were anticipating. So that’s basically what we do expect to see. So and the what comes on the big deals we talked about on Q4, yes, they are very much in the works. It’s going to happen on a Q.

My best guess is that Q3 probably, but let’s see how it plays out. But yes, so these kind of postponements, we do see. And so basically, this year, I think that the we’re going to do pretty much the deals we were thinking of, but the scale will be smaller.

Jakot Urbainen, Analyst, SEB: Okay. Excellent. Thank you. All from me now.

Anto Lauro, Analyst, Inderes: It’s Anto Lauro from Inderes. Maybe a question looking back at the last few years and give your thoughts on your growth trend. I mean looking at the rolling numbers evening out the quarters, you’ve had growth of some 25% to 50% per year three, four years back, and now we’re at somewhere like 10% to 15%. And I think there’s probably many drivers to it. But now in Q1, at the end of that, we maybe just had the soft start of the trade war, and the customers were still on their toes with investments.

So if you think of your product portfolio maturing and the effect that has on your growth versus maybe customers becoming more cautious overall, how do you think of the growth trend and the drivers behind it?

Juha Aurelius, CEO, QD Group: Yes, it’s a very good question. I think the well, the first thing that comes to mind is that why the percentages are more difficult is that the base number is increasing. It’s easier to make 25% growth on €10,000,000 than 25% growth on €100,000,000 So that’s obviously that we always talk about percentages, but the company has grown substantially what it was a few years back. So of course that’s affecting. If I look the well, if we go really far down the history, we were selling developer licenses and then we said that we’re going to introduce this distribution license.

And basically everybody told us that that’s not going to work. No one’s going to pay you distribution licenses. And well, but that happened, right? So and that number of devices has been growing. If I look back then, I saw basically and we were also talking to automotive.

I mean, it was automotive, automotive, automotive to the extent that some people thought that we are only in the automotive industry because it was the automotive introducing the infotainment systems and Mercedes, the digital cockpits and whatnot. And everybody was very excited about what’s happening in automotive. Now if I look, it’s the even Leopard tanks are having graphical screens. They have a digital cockpit inside the tank. And the medical industry has come there.

So it was the well, maybe this started from mobile really. The Apple iPhone was the first ical user interface that people got very excited about it and then it was automotive. But nowadays, I think it’s everywhere. So in that sense, I see that the market has grown substantially and the number of industries where do we see Now for example, it’s not that long ago if you bought a motorcycle or a scooter that the cluster was really kind of a clumsy black and white and whatnot. You see that industry picking up.

So now we see a lot of scooters done in India, for example, and the next generation clusters will be a lot, lot nicer because they are using correct tools. So in that sense and then I see new iterations of product innovation all the time coming. So I see that on cute market, the market has grown and the efficiency requirement is there. And there is no reason to explain. I mean, you see these interfaces in vending machines.

You see them pretty much everywhere. So that’s what has happened that the market has pretty much exploded. So we being in a cross platform tool from very low end to very high end, we can address that whole market And that’s really the success that we’ve enjoyed. The other is that we have the local offices, so we’ve been able to talk Korean in Korea, and we’ve been able to talk Japanese in Japan, whereas many of our competitors, they stayed on the they relied on reseller networks and they relied on one industry or one function or whatnot.

So, if I look back then when we were CHF20 CHF30 million on revenue, the competition is pretty much still there, right? So we’ve really grown our market share on embedded and you don’t get that research, but are we the market leader or are we definitely one of the gorillas on the embedded software development market, yes we are. And we are a well known brand in that particular market and whatnot. So no doubt about that we were very successful in the strategy work. Then if you think this business, like I said that the we think already now that how many people we need next year for different things.

So the embedded business is typically relatively slow moving. And the decision making on embedded businesses, I mean, are big decisions that we’re going to start doing this kind of a product and on what volume, where to manufacture, what are the target markets, what are the target prices and whatnot. So, it’s slow process. So, embedded is typically very slow moving business area. Whereas on web, if you look on web technologies, the prices are usually like €30 or €100 per month.

The technologies come and go and they get high volumes and then they die as quickly. Whereas on Embedded, you talk about developer licenses being thousands of euros per year per developer and it’s a bit it’s quite a bit slower moving. So when we see that the that things slow down a bit, we’re not that worried about it because the big trend will keep on moving. And that’s why we don’t kind of change. So back to your question that do I see slowness in the maturity of our product?

No, not yet. Will it be there someday? Definitely, it will be there someday. But at the end of the day, where we are as of today on a global scale and how many companies there are developing these things, yes, I think there is still quite a lot of room to grow on Q. But the on Q technology, yes, definitely, someday, it will start having the maturity.

But I don’t think with these numbers, we’re pretty far from that.

Anto Lauro, Analyst, Inderes: Yes, right. So I guess the maturity obviously has gone up quite significantly in the last three, four years with your market share going up. But with the last sale of the market and the market being rather slow, you don’t see kind of a rapid slowdown in growth?

Juha Aurelius, CEO, QD Group: No. And when we do reach that point, obviously, then the new sales will slow down, but the renewals will stay. Yes. So but I mean if you look the number of customers, the number of licenses we have on a global scheme of things, the when you start dividing our acute revenue per country, Let’s put it this way. If you think that we operate on three continents and you start dividing our revenue per country and whatnot, it’s relatively.

If I looked our revenue for example from China, it’s given the market size, we are like this big in China. I see or in The United States for that matter. So or in any other given market. So yes, we do have in this scheme, we have a relatively we’ve been able to break through and we have a bit different strategy than many of our competitors. This the other part from the retail having our own sales network, we also have this cross platform approach where you can actually use Qt on different industries, whatnot.

That’s say different than what our competition did. Yet, this is say different than our competition did that we can offer the testing and the developing tools. So we kind of are hard to compare to directly to competition in that sense. But of course, let me continue, someday it will mature. That’s why we’re having products that will grow.

I mean, that’s product portfolio management. So of course, QA is now small. It’s one day it’s going to be €100,000,000 and beyond. And we’re looking new products into our product portfolio so that the whole company will be growing. So it’s the product portfolio management in that sense.

You can also take it that way. So our intention is to keep on growing even when Q2 start maturing whenever that happens.

Anto Lauro, Analyst, Inderes: Maybe following up on that expansion part. Within QA business, you mentioned that Exivion has been tougher to sell because it’s a bit of a different product than the testing tools that you have. Have you cracked that yet and been able to speed up the adoption?

Juha Aurelius, CEO, QD Group: Yes, we have cracked. Yes, yes, we are on that path. Yes. So we’ve signed very big customers.

Heliumsa, IR Lead, QD Group: Last question.

Juha Aurelius, CEO, QD Group: Matti has the question 1b.

Matt Regan, Analyst, Carnegie: It’s Matti Reykjune Carnegie. Two small questions. We have talked to automotive revenue share earlier, and you have been saying that it’s roughly between 1020%, let’s put it at 15%. How much of that is developer license revenue and how much is distribution license revenue? Just trying to get a feel how important automotive segment is for you in terms of distribution license revenue.

Juha Aurelius, CEO, QD Group: Well, we haven’t disclosed that number. And since you asked it, I don’t even have it in my mind now. But we’ve actually said that the automotive is 15% to 20% as a whole and that includes the whole thing out of total. And if you think that how important it is the so it is important obviously. And kind of fluctuate say a bit that we do have well, there is Hyundai Motor Group on the screen and GM and Ford and whatnot.

So we do have and Mercedes Benz. So we do have automotive companies that are currently on a challenging environment because of these tariffs. And then we do have also we do have company automotive customers in China. And they seem to be producing they seem to be having no issues whatsoever. So they are going full ahead.

And then we have a whole other automotive customers that are not in this we don’t disclose their names. So, would say that the overall, yes, we’re going to be seeing softness over there. Is it going to be meaningful? Well, it’s going to be one part like I said. We are having softness in consumer electronics as well.

So, it all kind of goes together. So it’s not something that it’s going to slow us down completely if you like. And like I said on the runtime revenue the all the production that is going on now, for example, those cars will be manufactured. They may not be sold, but they will be done.

Matt Regan, Analyst, Carnegie: All right. Thanks. And finally, who is your biggest competitor in terms of comparable revenue, I mean comparable to your revenue?

Juha Aurelius, CEO, QD Group: Well, see, we do have competition on Q development side and that’s usually a vertical. So we have a competition in automotive, but we don’t see those in industrial automation at all and so forth. So it’s kind of hard to compare. And then we have competition on the testing side, but they are usually only on testing side. But I see so we’re kind of very unique in that sense that on the acute side we’re cross platform, 70 different industries, no direct no similar type of company over there.

And on testing, again testing is a very fragmented market. So there are a lot of testing companies. So the hard to find a comparable over there. The ones that I’ve seen are usually like development tool companies. There are some I can’t remember the name.

There is one private equity company. They’ve been kind of building a portfolio of tools. So they have lots of small tools put together and that’s kind of where we get into it. Sorry, I can’t give you any better answer than that on the companies.

Matt Regan, Analyst, Carnegie: All right. Fair enough. Thank you.

Juha Aurelius, CEO, QD Group: I think the I’m unfortunately on a very tight schedule, so we have to stop really at two. So this is going to be the last question.

Jakot Urbainen, Analyst, SEB: Just have one. Yes. And it’s easy.

Juha Aurelius, CEO, QD Group: And it’s going be the last one.

Jakot Urbainen, Analyst, SEB: How you’re seeing generally AI impacting your Qt Developer License business in the long term? Are you seeing, for example, risk someone risk of someone providing AI powered tool that has the similar outcomes that Qt has now and budgets brings a higher better efficiency to clients? Or will Qt actually be the one providing such tool? And in that case, would you be kind of able to monetize the more effective tool?

Juha Aurelius, CEO, QD Group: That was not easy nor short to give an answer. Well, on the testing side, I see that the when you use AI for generating software, that needs to be tested as a whole because AI can be good or bad and it can be bad intentionally. So you can never kind of trust it, so you have to test it all. So I see that the testing bit will grow on AI. Then AI, as I see it today, I see it as best buddy at work.

So if you have to be creative, can ask from AI. If you want new ideas, if you want to get your email better, you can use AI. I actually used AI when I wanted to write a very polite email, but then I figured out that everybody knew that it was AI done, not me, because it was so far from me. And I’m not saying I’m polite, but I’m saying that you can after a while you can actually you can realize when something’s done, when the text has been done using AI. So basically the but it’s a good body to help you in your work, whatever you do, creating content or whatnot.

And it can definitely create you can put it on development, creating simple development and doing simple development tasks, for example, for you. Or you can put it writing a test script for you. And then you view the test script and then you do the testing, these type of things. So it’s a great helper. And I think that that’s where it’s going to be.

Will you be able to do simple tasks with it, sort of simple coding? Absolutely, you will be able to do that. On Embedded, do I see that so you can use it to even enhance your efficiency on Qt. Will it be doing kind of an embedded software for car like an infotainment? Not in the near not kind of a foreseeable future, let’s put it this way.

So, you’re going to have AI helping being a part of Qt, helping developers to being more efficient. But I kind of see that it’s a really good work body for you. It can help you on many different ways. When you do your analyst work, I mean there are AI that you can you know it can help you a lot gathering data and sorting out data and whatnot. At the end of the day, you’re still going to be looking at it and making the conclusions.

Thank you very much. Thank you all over there on the other side. And I wish you a very nice springtime.

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