Qt Group Oyj

Hello and welcome to Qt Group's first quarter 2024 results presentation. My name is Herta Narvanen. I'm the communications lead at Qt Group. And today with me here are our CEO, Juha Varalius, and our CFO, Jouni Lintunen, to share the results. After the presentation, we have time for questions, first starting from the room, and if time permits, then from the conference line. Without any further ado, Juha, please go ahead.

Thank you. Good afternoon, everyone, and welcome to our Q1 results. And as usual, we go through our agenda first, the business highlights, then Joni will go through the financials, and then I'll talk about the guidance and outlook for 2024, and then we go into questions. So if we look at the first quarter highlights, it was a slow quarter. We were not very happy about it. The net sales grew 13%, reached 45 million, and it's 14% on comparable currencies. Our EBIT margin was at 24%. $11 million, which is, say, a 40.5% increase. So this continues to be a very profitable business, although we would like to see a bit higher top-line growth. And, well, the profitability is where we're thinking it... to be. We do have the comparable, like we said always, that the quarters are not brothers to each other, so we do have these big deals and this quarter we had a The comparable quarter was pretty good, and therefore it was a tough quarter to compare, but still we were expecting actually a bit better quarter for ourselves. So it was a tough comparison, and where we were behind Or if I look at how the business went, we did budget the consultancy revenue pretty much flat this year. And that's going according to plan. And that's always been a business that we don't... We do it to support our customers, especially our new customers. We're not looking to grow in that particular business. It usually grows slowly as the business grows. Now we saw last year that as the market environment got tougher, our customers were looking where to save and the consultancy was the obvious that they tried to do a bit more by themselves and whatnot. But so the consultancy went according to our plans. Our development license, license revenue actually grew very healthy. So we had a if we have our guidance on 20 to 30 percent, our license revenue was growing on a top end of that guidance. So the license revenue was doing very well. Where we were behind on the first quarter was on distribution licenses. So that was the soft bit that they actually made us to be a bit lower than we were expecting. The new customer acquisition has gone well and the renewals which I've been highlighting to you that this year we're going to be seeing more and more the one or three year subscriptions coming first time into renewals. And we've said that we don't think that they're going to be a big difference on big difference on that do people renew. We do believe that people will renew their licenses because the projects are ongoing. But there is that, are they going to be renewing three-year licenses into three-year licenses and so on, or instead of three-year licenses to one-year licenses? Well, that conversion rate is pretty much bang on what we've been expecting. So they are renewing and they are renewing on the rate that we have been expecting. And mainly that renewal goes into that they renew what was the old license. So we haven't seen a change over there. So now we are much more confident that if we were a bit... reluctant or we were hesitant to say that how that looks like. I think that the renewal business will go pretty much bang on on the budget that we've been thinking. And it seems that the developer, the license sales is going according to the plans. So the and it's growing nicely. So on a distribution license revenue was the softness. And if I look to regions, APAC is performing well and US is performing well. So mainly the slowness we had this quarter was in Europe. And so that's in a nutshell if we look where we are. I'm going to talk about the Q2 and the outlook after Joni's presentation. Personnel 806 on March 31st, increase of 31 employees. We are continuing hiring new people as planned, so we haven't changed our growth plans anywhere. If we look into the future, I think that percentage-wise, we've always hired on sales and we've hired on R&D. Now, if we look at our businesses, I think that percentage-wise, the increase is going to be the biggest on our quality assurance business. And that's what we are ramping up as we speak. If we look at the Q1 performance on quality assurance, it went pretty much like we were thinking. And we see that the FraudLogic's quiz cocoa is going forward fine. And Axivion, well, it's a bit different type of a business, the deal. On Squiz, it's like selling licenses on a fairly quick fashion, actually even quicker fashion than on Qt. Whereas on Axivion, the sales process is a bit longer. There is proof of concept and whatnot. So there is more fluctuation. What I'm trying to say is that there is more fluctuation on Axivion deals quarter on quarter. So it's not so steady, whereas Squish kind of grows very steady line and Axivion grows like a bit of a bumpy curve, if that's made any sense. Okay. With that, I'm going to let Joni to talk about financials, and then I'm going to talk a bit more about these different revenue groups and how do we see them going forward this year.

Please. Thank you, Juha. And welcome from my behalf as well to the Q1 earnings presentation. I will talk through the P&L side and some words about the balance sheet before Juha continues. You have touched pretty well upon the net sales growth already. We grew by 13% reported and 14% in comparable currencies. And there was a negative, slight negative impact from AFX US, namely by 0.4 million. The growth, as stated, did come from the licenses and consulting, which grew by 17%. And this contains as well the consulting and distribution license revenues, meaning that the developer license bucket was growing nicely. Our maintenance revenue is going down as expected now in the first half year, and then it will start gaining again the second half year when the subscription or the old maintenance tails have been eaten. We will keep on seeing strong quarterly fluctuation. It's because of the timing of the developer license deals, timing of the distribution license deals. And then also we expect to see the FX impact going forward as well. If the exchange rate remain the current level, it's kind of a limited impact for this year, but No forecasts in that regard, though. P&L, we are investing as per growth strategy. We are increasing our headcount in growth areas, CSR&D, for example, QA specifically. And our headcount went up by 100 employees during the last 12 months or 14%. And that was a bit kind of tail end quarter heavy in that way. So towards the end of quarter, the headcount increase got stronger. This explains the personal expense growth by 8% from 2.6 million to 24.4. Our materials and services spent was in slight decline, and that's the item that we use for adjusting the resourcing for our consulting projects. There's no change in depreciation, which is limited, 0.8 million per quarter. And then the other operating expenses were slightly up 6% to 8 million. I guess one sign of the scalability here is that we grew our expenses and headcount cost by roughly 2 million and revenues by 5 million. And that lands nicely the EBITDA margin, which went up close to five points from 18.5% to 24.3 EBITDA in absolute figures, 11.0 million. No change in amortization. There are no new acquisitions that we accomplished in Q1. This leads to EBIT of 9 million or 20%. And due to In slight kind of US higher value, the financial items were positive 0.5 million, out of which roughly half realized and half unrealized gains. And then the profit before taxes lands to 9.4. out of which then income tax is 1.8 million or roughly 19% effective tax rate, which is where it should be. We are reporting 7.6 million net profit or 16.9% and this leads to EPS of 30 cents. In balance sheet side there are only minor movements. First, I mean, not from balance sheet, but our operating cash flow was pretty good, 18 million, coming from the income, incoming payments from NQ4 deals. Ending cash balance was about 1 million higher than where we reported December 2023, despite the fact that we repaid the loan of 16 million early in the quarter. Accounts receivable down by 10 million and a slight reduction in the contract assets. And there's a slight shift as well from long-term non-current bucket to short-term one during the first quarter. In equity and liabilities side, the biggest change, there is the repayment of a loan, 16 million. And then some long-term liabilities move into short-term relating to the actual earn-out accruals specifically. but not much else of significant changes in these numbers. Now it's time to give back to Juho for him to talk through the outlook and guidance for this year.