Qt Group Oyj

Hello, and welcome to QT Group's third quarter of 2024 results presentation. My name is Hertta Nervanen, and I'm here today with our CEO, Juha Varalius, and our CFO, Jouni Lintunen, who will be sharing the results. After the presentation, we have time for questions, first starting with the room, and if time permits, then from the conference line. But without any further ado, please, Juha, go ahead.

Yeah, thank you. Good day, everyone. My name is Juha Aurelius, CEO of Qt, and we have a pretty much same agenda as usual. So I'm going to go through briefly the Q3, and Joni is going to talk about the financials, and then I'm going to talk about outlook and guidance, and then we're going to have Q&A at the end. So if we go to Q3, it was, of course, a disappointment for us. It was weaker than we were expecting. The net sales grew. We reached $42 million, and the growth in comparable currencies was 12.5%, and our EBITDA margin was 24.5%. So if we looked where we are at... At this point of time, we've seen softness in consulting. However, the consultancy business is... In the early days, we said that it's not going to be more than 20% of a total. Nowadays, it's less than 10%. So the effect is not that big, but it's definitely affecting. So consultancy sales has been slower than we expected. And we were expecting... consultancy to pick up on her second half basically we were in the early early of the year we were kind of seeing that the second half of the year economically would be better than it's been uh basically on developer licenses we are on budget so we've been selling developer licenses as we planned and the demand has been there um healthy and it continues continues to uh So in other words, our customers are not withholding their long term development plans or projects in that sense. They are going forward, but they're using less consultancy and we're selling the developer licenses as we as we've estimated. And I don't. Well, that's the future. But that's pretty much the way we see it going in the future as well. Where we have softness is the distribution licenses. If we compare last year where we had a very, very strong growth, and I said even at the end of last year and early this year that don't expect that kind of a growth for this year, it is definitely going to be a lot less. So it's still growing, but the growth rate on distribution licenses so far for the first three quarters, if I look, has been lower than we expected. So in some senses, this is a pretty similar situation we saw when there was a COVID time. So the developer license sales was doing okay. Consultancy was suffering. And runtimes, the distribution licenses were not selling as we were expecting. So then we saw a – when we saw softness in – We saw the – if we look APAC in Asia Pacific and Europe, we are pretty much on plan on all the other aspects of the revenue streams. In U.S., if I look the softness, we are even more soft in consultancy in United States. So in that sense, it's been developing slower. In the U.S. as well, the run times are lower and the developer licenses are pretty much on budget. But the differences are not long. Usually our regions, they change the pole position, but clearly we've seen that the U.S. has been a bit slower than before. If I look at the QA business, we have two products, Quiz and Cocoa, which were at the front logic. they were for the user interface testing. There we've seen a very healthy growth. So we've seen that that's going really well. On Axivion, we are still on kind of an early startup phase, if I would say. So Axivion was founded in Germany and in Europe. So obviously our European business is the strongest And in U.S. and in APAC, we're still in the early phases of ramping it up. However, if I look at all the signs, the customer feedback, if I see that how the early deals, usually on Axivio, the first deals are small, and then after a while there comes an expansion, and the customer feedback, everything seems to be going in the right direction on that. So we have no doubt whatsoever that that business is going to be growing very healthy on the coming years as well. But overall, if we looked at how our testing business has been performing, we are happy about it. So it's going pretty much according to the plan. So the only challenge, struggle we are having is around the distribution licenses mainly. And Joni is going to talk about the financials a bit, and then I'm going to open up a bit about how do we see us going forward.

Thank you, Juho, and welcome from my behalf as well to the earnings presentation. Let's start based quickly on the net sales growth in Q3. As we see, it was a soft one, grew by 10.9%. And in comparable currencies, it was 12.5%. So a slight negative impact from FX. Year-to-date, we are running at 15.7% reported growth. It's in neutral currencies somewhere at 16.5%, meaning that compared to the 20% floor of target growth, we are behind by roughly 4 million now. we are seeing the net sales growth coming from the license sales, as you have stated. And now we did see, what comes to maintenance, we did see the sequential growth from Q1 to Q2 already. And now in Q3, we do see that there's a kind of a growth also year on year, quarterly. And it's kind of to be noted that the maintenance, bucket is starting to follow the license sales trends. Exchange rates will have an impact and also the timing of the large deals, which we did not pretty much see in Q3. I mean, they will be causing some volatility going forward as well. In income statement bucket, the Consulting, subcontracting, which is the materials and services, it's flat year-on-year for Q3, somewhat down from previous year, showing that we are using less resources for consulting outsourcing, reflecting the slow demand from the customer side on that. Our personal expenses are up by 13% year-on-year. Our headcount is up by 112%. during the last 12 months' time, roughly out of which 50% are in sales, some 30% in R&D, and the rest into marketing and admin side. We are putting a lot of effort into the growth initiatives going forward as well, and it means that we are putting effort onto new customer acquisition, QA, testing tools, business development, and addressing those markets more strongly. There's no change in depreciation, pretty much. And then the other operating expenses, which is the other spend, it's pretty much flat year on year as well. And I mean, we have balanced those resource needs also. And for example, in terms of HR recruitment costs, we have insourced the talent acquisition and thus reflecting the reduction in outsourcing. We have put more effort into marketing and also travels same time. Our IPTA margin is roughly on the same level as last year for Q3, 24.5 compared to 24.1. And I mean the scalability It does not show up that much in Q3, but however, then year-to-date numbers, we do see that the EBITDA margin is up by four points, or EBITDA is up by 35%. The amortization of the intangibles, round rate is two million a quarter, no change in that, and it leads us to year-to-date EBIT of 24%, 33.8 million. In Q3, we had a positive impact from the financial items, and that's coming from the earn-out liability decrease, what comes to acquisition, and then that was offset by the FX impact of the currencies, intercompany balances specifically. Our year-to-date tax rate, effective tax rate, is roughly 21%, which is where it's supposed to be as well. And then the net profit for the period is 28.7 million, 20.4%. And EPS for the quarter is 30 cents, and year-to-date it's 1.13 euros per share. On balance sheet side, the ending cash balance is 45, That's reflecting the operative cash flow of 33 million year to date. Our trade receivables are somewhat on high side. There are some little bit late payments from the Q2 deals. However, then because of the customers are such a kind of established companies, we do not see any risk in that, even though they were delaying the payments to Q4. Also, another factor that is increasing the receivables is the increase in deferred revenue, the renewals deals that will be recognized as revenue only in Q4. This yet-to-date reduction of the 2.3 million in the contract assets, reflecting the like pretty much no change in new deals taken with the extended payment terms. On the equity and liabilities side, I guess worth mentioning there is the reduction of the interest-bearing liabilities by 18 million, out of which 16 from the loan for Axivion. And then the other short-term liabilities are up by roughly 4 million since the end of last year. coming from the increase in deferred revenue and then offset by the active and not liability reduction and some other minor fluctuation there. And now I will hand over back to Juho to go through the outlook and guidance for the year.