Qt Group Oyj

OMXH:QTCOM

Earnings Call Transcript 2023-Q1

[Heli Jamsa, executive]

Hello, and welcome to Qt Group's First Quarter 2023 Results Presentation. My name is Heli Jamsa, IR manager. And with me today are CEO, Juha Varelius; and CFO, Jouni Lintunen, to present the results. After the presentations, we will have first questions in the room, and then if we have time, questions from the conference call lines. Without further ado, please, you have the floor is yours.

[Juha Varelius, executive]

Thank you. Good morning, everyone. My name is Juha Varelius, I'm the CEO of the Qt Company. I have on this presentation only a couple of slides, and then Jouni will continue with the financials. And then later on, I will talk about the future outlook, how we see it as of today. We do have a fairly short presentation, which is our typical. We do the first and third quarter a bit shorter. And then the second and fourth quarter, the full interim results. So -- but if we go to the business highlights. We're very happy about the first quarter. First quarter usually we have a seasonality where our second quarter is stronger, and fourth quarter, obviously, as you know, is very strong. So we generate a lot of revenue and results in the fourth quarter. And then the first and third are usually a bit slower one. So having said that, we are very pleased on the first quarter. I did comment on the -- before the silent period, we had some analyst meetings, and I commented back then and earlier also that the outlook for this year looks good. And the -- so it did. And our net sales grew 27%, and we reached EUR 40 million on revenue and our growth on comparable currency is 24%. Obviously, when we are in the product business, license business, more we generate revenue, where we make profit, even we are investing very much on our growth, which you can see on new hires. So mainly our investments are hiring new people, and then we do quite a bit of a product development, our own. But despite that, we were able to demonstrate very good growth. So we've said many times before that this is a very scalable business model, and it also scales on the profitability. And I think that yet again, this was a very good proof of that. Our personnel was 706 in the March 31st, and that will -- well, on the future, this is already a future outlook, but that will continue. So we are hiring new people as we speak, and that will continue throughout the year. So a very good start for the year. We are very happy on the results. We did announce a bit earlier about General Motors. They chose Q4 full product portfolio for use on their vehicle development. We were excited about that the announcement. We're very excited, but such a prominent automotive manufacturer chooses skewed. And I think it's further proof that the -- our product is very good and viable in the current market environment. We do have a very strong position in automotive, as you know. But on top of that, we, of course, serve 70 different industries. Qt is a very horizontal product and it's used in many, many different use cases, and we do get distribution license revenue already as of today for many, many different customers and different industries. If you -- we -- we did quite a bit of product innovation and new features again, design studio, creator, Coco enhanced there were new versions about that. And then we launched a new analytics solution Qt Insight. And that, I think, also on our strategy, which says that we're going to be adding new products. Some of them we do develop ourselves in-house, and then we do acquisitions like we did on Q&A. On quality assurance, where we acquired very, very good products to -- and then we introduced them into our sales channel. So we're looking for products that fit into our current customer portfolio, and we are looking into products that fit into development, software development process where which actually is like the Qt for software development, our QA tools are forecasting and so on. With Qt analytics, the Qt Insight, our users will be -- our customers will be able to see that what buttons the end users are actually pushing and to be able to make the product even better. So it fits very well into this strategy and portfolio we've said before. And this will continue. So before I get a question that what about an M&A, yes, we're going to do M&A in the future when that's going to happen remains to be seen. But the similar acquisitions like we did on the quality assurance, you will see also in the future. The 2 companies we acquired on quality assurance, we've been very happy with both the Squish, Coco, and Axivion product. Obviously, the Coco and Squish are a bit ahead because that acquisition happened 1.5 years ago, almost 2 years ago and actually on last August. So -- but the -- we've been very happy on both products and their development, and our customers have been very excited about the -- seeing those in our product portfolio. So very good Q1. We actually made it pretty much on our internal plans. So we are pretty much where we were anticipated to be at this point of time. I'll talk after the financial more about the future outlook and how do we see the market? And Jouni, please?

[Jouni Lintunen, executive]

Thank you, Juha, and welcome from my behalf as well to the Q1 earnings call of Qt Group. And let's go a little bit more details into revenues, P&L and the balance sheet then. As said, we grew by 26.6% in the first quarter. There was roughly EUR 0.7 million tailwind coming from the FX impact of USD. And then the -- from the other perspective, the driver, again, on the revenue growth was the licenses and consulting, which grew by 34%. We do see the maintenance revenue stream going proportionately lower, and that is because of the ongoing change into the subscription mode, which then would leave less proportionally maintenance of total license revenues. We do expect still going forward, and this is no news that the quarterly fluctuation will be there going forward. And this will depend on the timing of the large deals, timing of distributor license bookings. And also, we will see exchange being -- exchange rates impacting us going forward. Roughly 2/3 of our revenues or invoicing is in USD. And now in Q1, we had a good car from that. Then with these current rates, there will be a headwind from USD remains to be by how much, obviously, the exact rates. P&L and expenses, they are according to our growth strategy plans. We keep on executing those. And obviously, the biggest part of our expenses is headcount, which salary expenses are up by roughly 33%. At the same time, our headcount is up by 31% year-on-year, roughly EUR 160 million, up from last -- and last year Q1. The organic growth of headcount was roughly EUR 120 million and then 40 with the outcome of the Axivion acquisition. No change in depreciation. And then the other operating expenses are up by roughly EUR 1 million, and that's kind of coming out of the fact that last year still in Q1, there was somewhat limited activities in marketing travels still because of COVID and now we are running kind of business as usual on that regard. All this leads to EBITDA of EUR 7.8 million, up by EUR 2.1 million from last year at EUR 2.2 million or 40%, and the EBITDA margin is 19.4%. Amortization is up by EUR 1.1 million, and that is the outcome of the or impact of the Axivion addition to the quarterly amortization amount. And this is the level we expect that to be continuing going forward with this structure. EBIT is up by EUR 1.1 million to EUR 5.8 million, and EBIT margin is 14.5%. Our financial items expenses EUR 0.5 million and then the income expense is the EUR 8.9 million. And this all leads to net profit of EUR 4.4 million for the period, 11% or EPS or of EUR 0.17. On the balance sheet side, on the noncurrent asset side, the pretty much only change is the some decrease in the noncurrent assets because of the amortization amount of the acquisitions. No change in the contract assets. Our operating cash flow was as expected, pretty strong in Q1, EUR 15 million. And this leads us to a cash balance of EUR 23 million at the end of the quarter. Accounts receivable, down by EUR 8.4 million, which is in line with the revenue, our invoicing amount in specific quarter. There's pretty much no change from last year-end on the contract asset side. And then the other receivables are somewhat down by roughly EUR 1 million, and that's driven by the fluctuation of the VAT receivables quarterly. On the equity and liabilities side, only minor movements, some decrease from December '22 in long-term liabilities because of some earnout balance being more to short-term side. And that's pretty much it also from the balance sheet side. So now I think it's back time to give back to Juha to go through the guidance and outlook for '23.

[Juha Varelius, executive]

Okay. So, well, nothing has really changed. I mean we know that the typical risks are there. We know that the inflation is high. Interest rates are high, and we do know that the markets are gonna be slowing down at some point. We do see some cautiousness in North America. And I think that it's the matter of time that things will start cooling off. Over there we do see that the some cautiousness also in Asia Pacific. We haven't seen that much in Europe as of yet. But I think that overall this year, the economy is going to slow down, that's for sure. Do we see a -- but is that somehow different than it was 3 months ago, not really in that sense, our long-term view has not changed. So we are keeping our guidance the same. If I'm looking the -- our pipeline development, how pipeline has been developing, how we've been making bigger deals in -- along the way and how we're negotiating them as now the situation is pretty much the same than it's been what it was 3 months ago. So I'm still expecting us to be very well in the guidance levels, both on revenue and EBIT. We don't expect there any big fluctuations. Jouni already mentioned that, of course, 2/3 of our invoicing is in U.S. dollars. So the currency exchange risk is there always or it affects our business. And I wouldn't actually see it as a risk. Sometimes we get good for it and sometimes we get headwind currencies they do fluctuate, and that's going to be part of our business as we go forward. Overall, the demand for our products is very strong, and it's remaining very strong. And we do expect that the -- for our software development tool needs, there are more and more customers coming into our domain, so to speak, and they are doing further and more and more development using good tools. We're also seeing more and more software being developed and there is a growing demand for quality assurance testing tool usage. So on both our main product categories, we see a growing demand as we go forward. And we don't see any change on that trend in the years to come. So -- in that sense, I'm looking forward very confident and that we're going to be able to meet the guidance we've given -- we've given for the year. And just to remind you, it was 20%, 30% on both. So 20%, 30% on revenue growth and 20%, 30% on EBITDA growth. And with that, thank you and questions.

[Felix Henriksson, analyst]

Felix Henriksson from Nordea. I have a few questions. I can go one by one. Firstly, were there any sort of exceptionally large deals signed in Q1?

[Juha Varelius, executive]

No. It was -- we always do 1 or 2 a bit bigger ones and then -- but a very difficult quarter in all in all.

[Felix Henriksson, analyst]

Then I'm asking in terms of the verticals, were there any that stood out with their strength or weakness? I think last time you mentioned that medical was one that has sort of been incrementally stronger for you guys? How was the...

[Juha Varelius, executive]

Well, the nothing -- no big changes over there. Medical is growing to be one of our big verticals, along with automotive, consumer electronics. It's -- I don't know if you can call consumer electronics a vertical. It's a really broad definition. But we didn't see any fluctuations on there either. And we don't see actually any weakness on consumer demand in that sense as of yet, either in -- and when we have to keep in mind, we always say this, but the -- if you look in our business quarter comparisons and quarter-on-quarter. It's -- our quarters do fluctuate, and they are a bit different. So in that sense. But we actually haven't seen any big changes in our customer demand or customer activity per se.

[Felix Henriksson, analyst]

Then can you give us any additional color on the distribution license growth in Q1? I know you guys don't disclose that, but what's the growth in that area better or worse than the group?

[Juha Varelius, executive]

Well, it's on a good level. So given the circumstances and given the economic uncertainty, I was -- you would have--maybe you would have expected that that's the first sign where we actually do see that if the economy starts slowing down. So when the COVID happened in 2020 and the factories were closed, that's where we saw that the distribution license sales growth slowed down substantially, whereas we saw that people still continued on developing stuff and buying developer licenses. We did see such a slowdown over there. Now our distribution license sales, if I look for the whole year, if things go like this, it looks good. So in this first quarter, if I look, there aren't really a whole other changes. And obviously, you can see that on the numbers. The numbers are very good. So the -- we do have a very good business demand. If I'm looking forward, that seems to be going on. But of course, it's only the beginning of the year, but the -- looks good.

[Felix Henriksson, analyst]

Then I guess we're seeing companies cut down their budgets also when it comes to R&D and IT budgeting, you guys have a quite sizable 3-year license deals coming up for renewal in the back half of the year. Are you sort of seeing any risk on those renewals that customers would sort of lower the number of licenses that they would renew.

[Juha Varelius, executive]

Well, that's a very good question. And the -- and that is something I interestingly waiting that what's going to happen. I don't think -- if I think the kind of a typical development cycle. So in the beginning, you have fewer people when you start developing and designing something, you have few people, then you decide that, hey, we're going to go forward with this, then you add the number of developers and you actually develop whatever you're developing. And then at once it's done, then you need fewer developers for maintaining the product in the life cycle of things. If I think the and this process takes on simple products, it's quicker and on more complicated products, it's longer. If I look how our customers are behaving, they are actually behaving in a way that the -- once they get on product done and in the maintenance phase, they already have new products on a pipeline, and they move their developers working on those new products. So I actually don't expect quite a lot of change over there. But of course, this is the first time we are getting into 3 year -- a bigger 3-year license renewals. So remains to be seen. The -- our churn rate is lower-- is low, and we haven't seen any changes on the churn rates and whatnot. So I definitely don't expect that all of a sudden people would kind of stop developing stuff and not renew the licenses because that's what it would take. I mean if they don't renew, they are not developing anymore. And I actually don't expect that to happen. We've never seen something like that. So I don't think that's going to happen now either. So the development work will continue and then the renewals will happen. Well, then the question obviously is that are they going to be renewing to 1-year licenses? Or are they going to be renewing 3-year licenses and that depends on the whether project is. But most of the majority of our customers are big, big companies and they do have multiple product development projects going on simultaneously and one following on and after each one. So I don't expect there to be a whole other changes. So the people using Qt will continue using Qt. And I don't expect nothing else than a support for our revenue development as a matter of fact.

[Felix Henriksson, analyst]

Final one for me. Could you just remind us on whether or not you've done any price increases recently? Or what do you have for plans for the rest of the year?

[Juha Varelius, executive]

We have not-- recently, we haven't done any price increases. But of course, we are monitoring how things are progressing. And we are living in a world where there is quite a lot of price increases. So I'm not saying there's not going to be any towards the end of the year, but recently, we haven't done. And I don't expect any huge price increases in the near future. We -- I think we are pretty competitively priced as we are at the moment, and I don't see a need for price increases in the near future.

[Jaakko Tyrväinen, analyst]

Jaakko Tyrvainen from SEB. Specified question on the quality assurance tools and their performance versus the traditional tools in this quarter. You've stated before that this -- you're not expecting these products to kind of dilute your group growth. How was it in this quarter?

[Juha Varelius, executive]

Well, it is like that. And we don't expect -- I don't see for a long period of time in the future that they would be diluting our growth numbers as a whole.

[Jaakko Tyrväinen, analyst]

Okay. Good. Then regarding the license mix between 1- and 3-year licenses, was it normal during -- if there is such thing as normal for you, but was it normal in this quarter? And also last year, which were the quarters you saw the sales mostly tilting towards the 1-year license.

[Juha Varelius, executive]

Well, of course, it's -- there is always a fluctuation, so it's a definition of what's normal. But I would say that the -- that's where we see it. I don't -- I wouldn't describe that there is a huge fluctuations. Last time when we see a bit more movement in it was second quarter a year ago. And I would expect that the -- that's how our customer behavior will be seen if things -- if the economy starts getting really in trouble, if the companies really start saving money and securing cash flow, then they'll probably move more into buying 1-year licenses because even though it's much more expensive on a lifetime of a 3-year license, it's the -- on a short term, you can have the license and spend less. So if our customers are getting in a situation where they need to really secure cash flow, and they are concerned about their cash position, then they would probably buy a 1-year license. And so that's what I would expect to happen if economy starts really slowing down, which means that I actually don't expect them to stop developing and stop development work that's -- I don't expect that. But if the things -- if the economy really starts going bad, then some of our customers will move into buying one year licenses. And having said that, many of our customers are very large corporations. So the -- we don't see a whole lot of customer -- our customers that they would be in a position that they would be cash constrained at the moment. But, of course, things could develop into that direction because of the -- well, we know that in the United States, the local banks are in trouble. The interest rates are going up. So probably the lending is tightening. So the -- will there be a not shortage of cash, but will the cash be more expensive than what you would expect. And in that situation, I would expect us to be selling more one year licenses. Do we see that that's going to happen, no, but that's -- I would describe that as a scenario.

[Jaakko Tyrväinen, analyst]

Good, thanks, then on your recruitments, you had a net 18 new employees during the quarter, a bit slower pace than we've seen over the past few years. Are you planning to further slow down the recruitments? Or will you keep pushing the pedal to the metal?

[Juha Varelius, executive]

Yes. pedal to the metal -- so there is fluctuations depending on the speed of recruiting on quarterly level, it varies and -- but yes, we are -- we do have a very big growth targets for the future, as you know, and we're driving towards those targets full speed, and we're definitely not slowing down.

[Jaakko Tyrväinen, analyst]

Good. Then my final one on the digital advertising or marketing solution you launched a while ago. Could you update us on that product, how has it performed? And when you are seeing that to contribute to the numbers in the future?

[Juha Varelius, executive]

Well, our numbers are getting bigger so fast that that's hard prediction. It's up and running. The production is up and running. They've been able to -- which means that we are sourcing advertising. We do have customers signed up. We do have some volume customers signed up, and we're growing the business as we speak. When it's going to be substantial remains to be seen and where it's going to be developing, it's a bit too early to say. But it's there, and we're building and growing the business as we speak.

[Antti Luiro, analyst]

It's Antti Luiro from Inderes. Two questions for you and then one for Jouni after. First one on your sales and growth. Any comment on how the split between new customers and cross-selling or growing existing customers has been developing? I know you don't report it, but in terms of trends.

[Juha Varelius, executive]

Well, when the COVID started, we were very concerned about how are we going to be able to attract new customers, and we put a special emphasis on getting new logos. It didn't actually change a whole lot. And we don't report it, but that percentage, it's about constant. So we do get new customers on the same level we've been getting in the past years, if I look on a new logos and whatnot. Then having said that, a majority of our sales comes from existing customers. And why is that? Well, even a big, big corporations when they start using Q, they start from the one project. It's usually a -- and in the beginning, like I described, you don't need that many developer licenses. Then you start expanding on that and then you start adding new products into that. So like customers like LG and Hyundai took many years for them to come very big customers. So in that sense, even a big cooperation in the beginning generates fairly little revenue. So we follow the logos. So obviously, we follow at what is the lifetime of that kind of a customer. And I'm very happy to say that the -- with well GM, of course, we announced, but we've done a fair amount of deals. Let's put it this way, a fair amount of deals that ended up on my desk, and they're going to be generating revenue in '25, '26 and beyond. So in that sense, when I talk about the long-term view, not about the second or third quarter, but when I talk about the long-term view, I'm very confident and I'm very happy that this company will be growing in the future because we've done a substantial amount of very nice deals. Unfortunately, we won't be able to use them as a reference because they don't want to...

[Antti Luiro, analyst]

Second one on Qt's life cycle stage as a company. I know you've been talking about recruiting and investing in growth. Are you seeing in the foreseeable future, any shortage of areas to invest in? And do you see huge growth maturing anytime soon?

[Juha Varelius, executive]

Well, that's my personality. I don't see any limit on growth really I mean, if you look at the -- where we are as of today, you look at our global footprint that we are in the United States, we are in Europe, and we are in Asia Pacific. We have an excellent sales network throughout there. Our customers are well-known big, big brands that they are spending billions and billions on R&D and software development and our relative size, we are adding there more products to offer them. So -- of course, there is going to be a time when the potential market is using acute development tools, and then they are renewing and their subscriptions 1 year or 3 years, and we do have our share of the market on runtime revenues, but that's years to come. If I look at how we're building the product portfolio, we are all the time adding new products in the product portfolio that are in the new products in emerging to grow bigger. So we're taking care of our product portfolio in a way that we don't have only products that are already mature in a cash milking situation. We're building it so that we have new things coming to the market all the time. So I don't envision the the growth stop in 26% or 27%. Obviously, they are far away, and we can't make predictions forever. But if you look at the culture of the company and the strategy of the company that we keep on adding products, even though if we give our guidance to end of "26, it doesn't mean that this is going to be flat after that. So the management and the whole company is working hard that we're going to be trying like this many, many years to come. And of course, it needs new products into the portfolio and new services into the portfolio because none of these products will grow forever by themselves, obviously.

[Antti Luiro, analyst]

That's good to hear. And the final one on the financials. On your working capital development, of course, your cash flow was really strong in -- but since you made the license model change some 2 years back, there has been some more capital tied up or less capital tied up in short-term liabilities. Do you see that trend stabilizing now? And can you explain a bit on what has been behind the development?

[Jouni Lintunen, executive]

Sure. Yes, the subscription license most started like second half of 2020. And prior to that, more proportion of the invoicing was to invoice maintenance, what was then recognized or period of the maintenance period. And now since we are moving more and more to subscription, the subscription license revenue recognition is like more upfront in that sense. So deferred revenue amount is smaller. And we expect that to be kind of stabilizing now since the -- well, we don't on the cut side, we don't basically sell any other type of licenses or maintenance anymore, but only subscriptions.

[Antti Luiro, analyst]

Great, that's helpful. Thanks.

[Heli Jamsa, executive]

So if that's questions in the room, let's move to questions on the conference call lines.

[Operator]

If you wish to ask a question, [Operator Instruction]. The next question comes from Matti Riikonen from Carnegie Investment Bank, Finland branch. Please go ahead.

[Matti Riikonen, analyst]

It's Matti Riikonen. A couple of questions. I'll take them one by one. Firstly, regarding the contract maturity split, how would you comment that? I think in Q4, you said that it had returned to normal was Q1 also normal in terms of earlier split between 1-year and 3-year licenses.

[Juha Varelius, executive]

Yes. I think that question was already asked and we -- our reply was that the -- we do, of course, it's not constant exactly. So we do see the fluctuation. But we we would describe that as a normal fluctuation as it is now in a whole company level. I also highlighted that when do we expect people to be more interested on a 1-year license rather than 3-year license or what could be the driver for that kind of a change is probably the economic uncertainty and our customers' willingness to secure short-term cash flow because, obviously, the 1-year license is cheaper. But over the 3 years, it's more expensive. But if there is a need for a customer to reserve cash on a short term, then we would expect them to be more towards 1-year licenses. So I think that as we go forward this year, if the economic uncertainty and lending squeeze are really going to start affecting our customers, then we would expect that kind of behavior. And at the same token, I replied that the -- many of our customers are very, very big corporations. We're talking about LGs and GM and Hyundai and these type of big corporations. And our license expenditure on their whole budget is obviously a fairly limited number in their whole R&D budgets and whole R&D spending. So in that sense, we don't expect there is always going to be a bit of fluctuations, but nothing major we've seen now. Where is it going to be? It was also highlighted here that the -- on the latter part of the year, we're going to start seeing 30-year licenses coming into renewal and what's going to happen then. We don't expect any of our customers to stop developing with Qt. So we do expect that the renewals will happen also. But the -- how the renewals will then behave that remains to be seen. But like I said, we're not concerned about the fact that people all of a sudden would stop developing and not renewing the licenses since these development processes are very long.

[Matti Riikonen, analyst]

All right, thank you. I'm sorry if I missed some parts. All right. Secondly, regarding your guidance for top line, what kind of contract maturity split does that assume? So does it assume more shifting into 1-year licenses later over the year? Or is it basically based on 2 days contract security split?

[Juha Varelius, executive]

Yes, it's 2 days. So we've done the budgeting that what was the historical development, and that's how we budgeted for the future as well. And we do expect on a yearly level that, that's roughly going to -- that's how it's going to go. There are 2 sides of it. I mean, on the other hand, you would think that, well, it's good if people buy 1 year licensees and then they buy them each year. It's more money and whatnot. Then on the other hand, on a new customer, I like when they buy a 3-year license because if you develop something 3 years, you're definitely going to renew. You don't work on 3 years and then drop it and put it on track. You're going to -- you definitely going to continue. So a new customer taking 3-year license is very unlikely to churn after 3 years of work on a product.

[Matti Riikonen, analyst]

Okay. Then thirdly, you have earlier talked about your large customers starting programs in 2023, which would have a positive impact on your business. Is that geared more towards developer license sales or distribution license sales? Or is it 50-50?

[Juha Varelius, executive]

Well... The ones I'm thinking are all distribution license companies. So when I'm saying that I think we're going to see the contract value of those deals to peak in '25 and '26, I'm thinking differently on the runtime revenues.

[Matti Riikonen, analyst]

All right. And was General Motors, one of the big deals that you were...

[Juha Varelius, executive]

Absolutely. Absolutely, yes, but not the only one.

[Matti Riikonen, analyst]

Okay. Then regarding the valuation of potential M&A targets. Have you seen any change in the market valuation of nonlisted companies now that we have seen the collapse of growth company stocks for the past 1.5 years.

[Juha Varelius, executive]

Well, yes, of course, yes, we have. I mean, that's for sure. I mean, companies that have not made any transaction, they may say that our valuation is here, but the transactions are not happening on those high valuations anymore. And I wouldn't pay those valuations were in place a year ago. I just said I wouldn't pay. I mean, -- but the -- of course, we do see companies that they think that the valuation hasn't changed, but I mean, multiples have changed. That's the reality as of now. Will they change also in the future? Yes, they will. I mean, so that's how life goes, but they are the multiples same than they were a year ago now, authomultiple is going to be as low as they are today, probably not. I mean, what we're going to see is that the these interest rate hikes will -- they will kick in and the economy will slow down. The inflation starts coming down and then the interest rates start coming down. And then all of a sudden, the growth companies, multiples will go up again. So -- but as of now, yes, absolutely, they have come down. And it also affects that the -- it's not that easy to get financing anymore. I mean a year ago, that there was money floating around in the market. We also saw -- we've seen that there is -- people are a lot more cautious where they spend their money as of today. So the -- it's -- if you're a loss-making startup, it's very, very difficult to get financing on very high multiples at this point of time. So yes, they have come down.

[Matti Riikonen, analyst]

Good. Then second question about any update on the conversion rate to the new licensing model. I think you last spoke about having achieved roughly 80% conversion from old clients to the new model, and there would be 20% left for this year. Where do you stand at the moment? And what's your current forecast? How much will not convert at all? And how much you will be able to convert still this year?

[Juha Varelius, executive]

Yes, that's a good question. Maybe one has some more in detail. I think that when we started in this conversion, I said that 10% to 20% of the customers will never convert they will continue with the old versions. And I still think that the -- that's where it's going to end up. So in a bigger scheme of things, I would already recall that the conversions are pretty much done. Of course, there will be some still this year to remain. But the bulk of the conversions in -- that's my guesstimate that they're done. Is it going to stop at 10% or 20%? Well, it's probably going to go below 20%, but a certain amount of customers that just -- there is no need to convert. So it's never going to get into 100%.

[Jouni Lintunen, executive]

That's exactly how you assess it. I mean, the conversions have continued, but now in the Q1 on slow pace. And I mean turning it around, I would consider this kind of a project accomplished in a way, a big picture.

[Juha Varelius, executive]

Yes. So they're done. And then -- sorry, yes, one more thing. There will be conversions, but I mean how material and big picture they are, I mean, it's not that big a thing.

[Matti Riikonen, analyst]

Okay. And then finally, I think there was -- when talking about headcount increase, you used 26% in the text in the report and 31% in the tables, I think 31% is probably right. Is that the correct assumption?

[Juha Varelius, executive]

One is the ending headcount. That's the, if I recall right, the lower amount. And then the average of the quarter is the higher 31%. That explains the difference. Okay. That's the difference.

[Matti Riikonen, analyst]

Okay. That's all from me. Thank you.

[Operator]

The next question comes from Sami Sarkamies from Danske Bank.

[Sami Sarkamies, analyst]

I have 3 questions. We'll take them one by one. Firstly, I wanted to go back to the demand environment that is cooling off in the U.S. and Asia, according to your comments earlier, can you describe how this is impacting your trading at the moment? And what impacts could be visible during the remainder of the year?

[Juha Varelius, executive]

Well, it hasn't impacted us so far when I commented that the U.S. economy is slowing down, it's a general comment, but what we see in the United States that the economy in our mind is cooling off. There are a lot of layoffs in different industries and different companies and people-- companies and the corporate America is getting ready for a slowdown. That's what we've seen. We haven't seen that slowdown in our business as of yet. Where would I expect to see something, if any, probably I would see at first on the consultancy business. And I would envision that the -- and so in the beginning of the project, when there is consultancy and proof of concepts and this kind of work there, I would actually expect to see it in the beginning. And then the latter part, then later, I would expect that to see that people are postponing the decision making. So when there's been uncertain times before, what we saw was that we are instead of starting a project now, let's wait for a couple of months and see that where the world is going and then eventually, pretty much the projects do start because our customers can't hold the development forever, but there is a slowdown in decision-making. That's what I would envision -- and that's -- we haven't seen. Obviously, if you look at our Q1 numbers, we haven't seen any of that happening. If I look at our Q2 pipeline and pipeline buildup, I haven't seen that happening. But what we have seen, like I said, is the overall other layoffs in the United States and an expectation that the U.S. economy will start slowing down, if not on the second quarter, at least on our second part of this year.

[Sami Sarkamies, analyst]

Okay. Then going back to price increases that were discussed earlier. Can you explain why you're not even contemplating price increases? I mean, many companies are doing those at the moment because it's maybe easier than in the past. So why not in your toolbox at the moment?

[Juha Varelius, executive]

Well, like I said, on a short term, I don't see a need. We did move into subscription licensing not long ago, and we've done price increases. So the -- I don't see that in the near future, we would go into increasing prices on a short term. Let's see on the longer term how we do check our prices and our competitive prices on a regular basis. And obviously, we make our decisions so that we trend in the market in the same position where we are. So are we going to be seeing price increases later this year remains to be seen. I may a bit cautious that the -- I don't -- we don't have them in plan, and I don't want to promise price increases in the latter part of the year because it might be that there won't be any in this current environment for any company to that matter.

[Sami Sarkamies, analyst]

Okay. And finally, going back to the mix discussion regarding second quarter. Did I understand correctly that you are assuming now that the mix will be, let's say, more normal during Q2 unlike last year?

[Juha Varelius, executive]

Yes, I do. Yes. I think last year, the the change we saw was the -- you create the war in Ukraine. So -- and like I explained a bit earlier over here that I would assume that if people start being uncertain of the future. And because of that, companies will start securing cash flow as much as possible and cash as much as possible and they start minimizing the spend on a short term as much as possible, then our customers would move buying into 1-year licenses. But for a majority of our customers, the development processes, they take longer than 3 years. So if you look to that buying a 1-year license each year, it's substantially more expensive than buying a 1 3-year license. So in going into 1-year licenses, you would have the reason to yourself that I'm doing this because I want to secure as much cash in a bank at this very moment and I'm willing to pay for it a bit. So that would be the reasoning. I think the war in Ukraine kind of raised the uncertainty level short period of time to very high and that reaction we saw. Do I expect -- now there are a lot of negative news in the market, but do we hear kind of a substantially different and more negative than it was a month ago, not really. I mean the situation from our point of view is pretty much the same than it was in the beginning of the quarter. So we don't expect that kind of a change to happen at this point of time.

[Sami Sarkamies, analyst]

Okay. I don't have any further questions.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Juha Varelius, executive]

Okay. Thank you very much for all the questions and coming to our event. Just a couple words to remind. We had a very good first quarter. We've had a very good pipeline buildup for the second quarter, and our outlook remains the same. And we are looking very excited for the remaining part of the year. And we think that this is going to be a very good year for the Qt company. Thank you.