Qt Group Oyj

OMXH:QTCOM

Earnings Call Analysis

Revenue Growth and Strategic Investments Boosted Margins

In Q1 2024, net sales grew 13% year-over-year to €45 million. The company's EBIT margin improved to 24%, driven by a 14% increase in license and consulting revenues. Headcount grew 14% over the past year, supporting their growth strategy in sales and R&D. The company reaffirmed its guidance of 20%-30% revenue growth and operating profit margins between 25%-35% for 2024. Market performance varied, with strong results in the U.S. and APAC, while Europe lagged. Quality assurance products like Squish and Coco showed stable growth, but Axivion faced more variability due to longer sales cycles.

Strong Revenue Growth Amidst Challenges

In the first quarter of 2024, the company reported a revenue increase of 13%, bringing net sales to EUR 45 million, while the growth adjusted for comparable currencies was 14%. This growth was primarily driven by a solid 17% increase in licenses and consulting services. However, the positive revenue growth was tempered by a decline in maintenance revenues, which are expected to rebound in the latter half of the year as older maintenance contracts expire.

Operating Margins and Financial Performance

The company's Earnings Before Interest, Tax, and Amortization (EBITA) increased significantly, reaching EUR 11 million, resulting in an EBITA margin of 24.3%, a notable rise from 18.5%. This demonstrates effective cost management despite a headcount increase of 14% to support growth initiatives. Total personnel expenses rose by 8%, but revenue growth outpaced expense growth, highlighting better scalability and operational efficiency.

Guidance and Future Expectations

Looking forward, the company remains optimistic, projecting revenue growth of 20% to 30% for the year. This guidance is bolstered by successful new customer acquisitions and ongoing renewals of existing licenses. Particularly in the developer licensing segment, which is performing well, the company is confident in maintaining this robust growth trajectory.

Fluctuating License Revenue Dynamics

While developer licenses are showing consistent growth, distribution licenses have faced some softness in Europe, likely due to client caution. The management indicated an expectation for a gradual improvement in distribution license revenues as market conditions stabilize and client demands normalize. Notably, fluctuations in revenue from distribution licenses can be considerable, making it a key focus area for monitoring throughout the year.

Global Market Insights

Geographically, the company has seen positive momentum in the U.S. and Asia-Pacific regions, contrasting with more cautious behavior observed in Europe. The management expressed confidence in the underlying demand for their products, particularly in markets like China, where digital interfaces are gaining traction across various industries. Innovations and partnerships with leading technology firms signal the company’s commitment to expanding its market footprint and enhancing product offerings.

Challenges and Strategic Focus

Despite the overall positive outlook, management acknowledges specific risks related to distribution licenses and regional market fluctuations. The ongoing cautiousness among European clients poses uncertainty, but strategies are in place to foster stronger performance. The focus remains on driving new customer acquisition and ensuring successful renewals to sustain growth in the face of these challenges.

Quality Assurance Business Projections

The quality assurance (QA) segment is expected to continue on a growth trajectory, particularly through its products 'Squish' and 'Coco.' Management noted that while revenue generation from the smaller Axivion business might be inconsistent, the overall QA market holds substantial growth potential. They project that approximately 30% of revenue could eventually come from outside the existing ecosystem, indicating a clear path for expansion.

Operating Cash Flow Generosity and Debt Management

Operating cash flow remained robust at EUR 18 million, despite the early repayment of a loan totaling EUR 16 million, indicating strong cash management practices. As of the end of the quarter, the company also saw a decrease in accounts receivable and other short-term liabilities, further bolstering its financial health.

Earnings Call Transcript 2024-Q1

[Hertta Narvanen, executive]

Hello, and welcome to Qt Group's First Quarter 2024 Results Presentation. My name is Hertta Narvanen. I'm the Communications Lead at Qt Group. And today with me here are our CEO, Juha Varelius; 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.

[Juha Varelius, executive]

Thank you. Good afternoon, everyone, and welcome to our Q1 results. And as you saw, we go through our agenda first, the business highlights, then Jouni 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. It's -- the net sales grew 13%, reached EUR 45 million, and it's 14% on comparable currencies. Our EBIT margin was at 24%, EUR 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 were 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 -- 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 the -- 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%, 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 actually made us the -- 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 the -- this year, we're going to be seeing more and more the 1 or 3-year subscriptions coming first time into renewals. And we've said that we don't think that there are going to be a 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 3-year licenses into 3-year licenses and so on or instead of 3-year licenses to 1-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 a 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 the -- if we were a bit reluctant or we were hesitant to say that how that looks like, I think that the renewable 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 plan. So the -- and it's growing nicely. So distribution license revenue was the softest. And if I look to regions, APAC is performing well, and U.S. 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 QA and the outlook after Jouni's presentation. Personnel 806 on March 31, 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 the 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 froglogic's Squish Coco is going forward fine. And Axivion, well, it's a bit different type of a business. The deal on Squish, 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 concepts and whatnot. So there is a 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 Jouni to talk about financials. And then we'll talk -- I'm going to -- well, I'm going to talk a bit more about these different revenue groups and how do we see them going forward this year. Please.

[Jouni Lintunen, executive]

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. Juha touched pretty well about the net sales growth already. We grew by 13% reported and 14% in comparable currencies. And there was a negative -- slight negative impact from FX, U.S. namely, by EUR 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 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 at the current level, it's kind of a limited impact for this year, but no forecast in that regards, though.P&L, we are investing as per growth strategy. We are increasing our headcount in growth areas: sales, R&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 -- tail-end quarter heavy in that way. So towards the end of quarter, the headcount increase got stronger. This explains the personnel expense growth by 8% from EUR 22.6 million to EUR 24.4 million.Our materials and services spend 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, EUR 0.8 million per quarter. And then the other operating expenses were slightly up 6% to EUR 8 million. I guess one sign of the scalability here is that we grew our expenses and headcount cost by roughly EUR 2 million and revenues by EUR 5 million. And that lends nicely to the EBITA margin which went up close to 5 points from 18.5% to 24.3% EBITA in absolute figures, EUR 11.0 million.No change in amortization. There are no new acquisitions that we accomplished in Q1. This leads to EBIT of EUR 9 million or 20%. And due to a slight kind of U.S. higher value, the financial items were positive, EUR 0.5 million, out of which roughly half realized and half unrealized gains. And then the profit before taxes lands to EUR 9.4 million, out of which then income tax is EUR 1.8 million or roughly 19% effective tax rate, which is in ballpark rate, where it should be. We are reporting EUR 7.6 million net profit or 16.9% and this leads to EPS of EUR 0.30.In balance sheet side, there are only minor movements. First, I mean, not from balance sheet, but our operating cash flow was pretty good, EUR 18 million coming from the incoming payments from end Q4 deals. Ending cash balance was about EUR 1 million higher than where we reported December 2023, despite the fact that we repaid a loan of EUR 16 million early in the quarter.Accounts receivable down by EUR 10 million and a slight reduction in the contract assets. And there's 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, EUR 16 million and then some long-term liabilities move into short-term relating to the Axivion earnout accruals specifically, but not much else of significant changes in these numbers.Now, it's time to give back to Juha for him to talk through the outlook and guidance for this year.

[Juha Varelius, executive]

Okay. So, well, long term, I think that the -- if we look this year, well, like I said, we've budgeted the consultancy to be pretty much flat. And that's what I -- it might grow a bit faster. We've been gaining some new customers that they might need a bit more help than we've anticipated in the beginning, but that's roughly where it is. And I think that this market environment, U.S. economy is doing well. And on APAC, we're seeing a lot of activity. I think in Europe, we're seeing a -- well, we do see activity, but we do see that our customers are -- cautious might be the right word. Not hesitant, but cautious, and the -- very cautious on cost side as well.Like I said many times before, we don't see -- on developer license sales, we do see that all our customers, they do have their projects, they do have their plans. They're going to go according to those plans. So we don't think that -- the license sales, we see -- pretty much see steady, healthy growth we've been seeing in the past years, and that's going to continue. We don't see any bumps on that.If we look on the distribution license revenue, we think that -- well, in Europe, we think that it's going to start picking up. There's been some cautiousness over there and slowness. If we look in U.S. and in Europe -- in U.S. and in APAC, I think they're going to continue their good performance over there. That's the line item that I think we have the least visibility in some sense, because it comes from many various sources and whatnot. But just yesterday, I was speaking with our sales guys in Europe and some of the sales guys in Europe, and they say that they think that the environment is now more optimistic than it was on Q1. So they see that it's probably going into a more positive direction.If I look to QA business, I think Squish, Coco, they're going to continue pretty much on a growth path they've been. And like I said on Axivion, I think that -- well, it's still such a small business, and the deal making is a bit different in a way, that each deal is negotiated, it takes a bit longer time, like a Qt in the beginning, as a matter of fact. And so if we look like the first half, I think it's going to be -- so it kind of [ peaks ] and the deals come in more on a random sequence. It's not so steady line as on the other business lines. However, we see that all the customers we've been talking to that are using our Axivion and our Squish products, they are very happy about them. And so we see same story a bit like on Qt, that the product is very good, the users are getting a very good feedback, and there is definitely a need.We've talked many times about the Qt need, that there is a lack of developers, there is more software to be developed, and therefore there is a need, a tool like Qt, that you can use the code all over again and cross-platform tool that increases the efficiency of the developers. Well, now that we do have this vast amount of code coming into the market, there is even more need to be able to automate the testing on graphical user interfaces, and there is even more need to be able to do the testing on a code even before it's ready. And there is even more need to get the architecture in place in a right manner. So we think that the QA market basically is double the market -- potential market that we have on Qt. So it's twice the size. And our target is that we would get roughly about 30% of our revenue in the future outside of the Qt ecosystem, which means that the other languages, Windows, Java and so on and so forth. So it also opens up the addressable market that we're very excited about that opportunity. And we see that it's on very early phases and QA is going to have a nice Qt-type of a story ahead of itself.We don't see on a long term that there is going to be much change in this big picture. We do see that both on Qt and -- well, it's always difficult to say projections many years ahead, but let's say that the next couple of years that we see that what people are doing and how things are expanding, we see no slowness in that per se.So we are keeping our guidance. We estimate that our net sales will increase 20% to 30% and our operating profit will be on 25% to 35% bracket. And as always, I think that the -- unfortunately, this year is not going to be any different. So what we see is that usually first quarter is a bit slow, second quarter is better, third quarter is a bit slow compared to the other quarters. And then the fourth quarter and the last month of the fourth quarter is very, very busy and that's going to be pretty much the same this year as well. So the latter part of the year and specifically the fourth quarter is going to be the -- far out, the busiest and best quarter of the year.And this hasn't changed. Why this has to be so, I really don't know. Maybe we should change our fiscal year and then we would put it on the third quarter. I don't know, but that's how it seems to go. So we actually sell on December. We sell -- a substantial part of the whole year's revenue are coming in on December and that's how it works.But yes, one thing, if I looked at -- when you think about this guidance, so if I look at the pipeline we are having now, and if we looked at, we closed that pipeline into same ratio that we've been doing before, then that gives us the belief that we're still very good in this guidance that we are now giving. So we do have a healthy pipeline and it's growing as we speak. So there is -- we haven't -- and we haven't seen any slowness in building that pipeline. So in that sense, we're pretty comfortable that we're going to be meeting the whole year target this year.And that's actually the end of slides and we can start questions. Matti?

[Matti Riikonen, analyst]

It's Matti Riikonen, Carnegie. A couple of questions about the distribution license business. Since you talked about distribution licenses in Q4, has there been any changes in your clients thinking about the production volumes that they talked to you about? So have they indicated any kind of slowness in their volumes compared to 3 months ago -- actually 2 months ago? So any kind of indication from their side?

[Juha Varelius, executive]

No, no. When we did -- when we had COVID, then the customers were actually telling us that, hey, there's going to be a slowness. But no, we haven't had -- I haven't heard such -- no, I haven't had such discussions with customers now. And I think -- well, the thing for us is what say, a bit difficult. So we have a -- the distribution license goes in a couple of ways. Either customers report us that so and so many things were sold, and here is the distribution license revenue, or they buy, for example, 0.5 million distribution licenses, and once they are used, they buy an x stack, kind of, and then this distribution license revenue, we always -- often we talk about automotive, but there are hundreds of clients paying us distribution license revenue. So it's coming from very multiple sources. We have 70 different industries, so there are cars and then they are very small devices.So if unusually, the clients don't tell us exact volume numbers, we do have a -- if we suspect that they are wrong, we can do an audit later, but beforehand they may give us an idea. But many customers don't tell exact production numbers because it's kind of an -- it's an information they want to keep themselves. And so therefore, for us to estimate the distributional license revenue exactly for each quarter is, say, a bit of a challenge. So we have an idea, but we don't have an exact figure.

[Matti Riikonen, analyst]

Right. Then how much do the distribution license kind of payments and revenues that you book, how much do they fluctuate normally per quarter? So are we talking about kind of big fluctuations, like EUR 5 million per quarter or is it [ smaller ]?

[Juha Varelius, executive]

Yes. A lot. That's why we tell it on a yearly basis. It really fluctuates a lot.

[Matti Riikonen, analyst]

Right. And do you have any seasonal expectations on how the quarterly payments or revenue bookings land beforehand?

[Juha Varelius, executive]

No, they -- we do -- they do fluctuate quarter-on-quarter throughout the year.

[Matti Riikonen, analyst]

Right. Okay. And maybe just a recap of what you have been talking about earlier about the average prices and prices in different product categories. Is it still so that you are getting roughly USD 1 per automotive screens and EUR 0.20 to EUR 0.30 per inexpensive devices like coffee machines?

[Juha Varelius, executive]

Yes. So, yes, like I said, it's coming from many different various clients and different sources. So take those -- and I know that you try to evaluate the runtime potential, so those are the prices I've given you so that you can end up in a ballpark. And that hasn't changed. And sometimes we do see that some of our competitors may be offering a lower prices, but we don't go into that price competition and we don't think that it's a long lasting story. So if we think that the -- it's -- in automotive, if the screen is USD 1 a screen or EUR 1 a screen, it's such a small fraction of the end price of the product that it's better for the OEM auto manufacturer to make sure that the car digital cockpit is the best possible that there is, rather than trying to save EUR 0.50 per screen. So we don't see -- we do see sometimes the competition, usually that is fading out, their last resort is kind of trying to lower the prices. But we don't do that.But yes, so -- I mean roughly like that. If you go on a -- well, on cars it's per screen. If you go into MCU-type of products that's very little hardware, very little software, then you end up in that EUR 0.20, EUR 0.30 bracket. Then you usually [ end at ] very high volumes too.

[Matti Riikonen, analyst]

Sure. Then is the average price still around EUR 0.70 as you have discussed earlier?

[Juha Varelius, executive]

Yes. If I would be an analyst and I would be doing modeling, that's something I would be using.

[Matti Riikonen, analyst]

Okay. So you don't think that it would be changing over time since you have been closing quite a lot of these kind of small ticket items, but it's going up.

[Juha Varelius, executive]

Yes. Well, it's inflation. Prices are going up.

[Matti Riikonen, analyst]

That's the reason, not in the sales mix, the reason...

[Juha Varelius, executive]

No, not in the sales mix. I think that in some senses, your -- it's not that accurate. But I understand the logic that more and more we go into low -- high volume in the other industries, the average price might be dropping in that sense, I see. But at such a rough number, that's to give you an idea because I know that some analysts have been doing a calculation that they take the number of different devices and then they think on how many devices we might end up. I've told that that's a bit miss and impossible, but I've given this kind of a guidance that if you try to do it like that, then that would be roughly a price to look for and to give you a guidance that how could you be able to calculate it. But, yes, so we're talking about small prices and high volumes. Do I think that the distribution license prices per se will go up in the future? Yes, I do, like every other license price is going up. Is that mix going to -- it's such a rough number that even though we do get a higher volume, lower numbers more, I wouldn't -- I still wouldn't use that as planning at this point of time.

[Matti Riikonen, analyst]

Okay, fair enough. Then one question about the testing and quality assurance software. I understood that you plan to hire a dedicated sales person to sell the quality assurance product and I think you highlighted that you have been recruiting or investing in that area. So since the kind of sales cycle can be longer there, is it fair to assume that the second half of this year would be stronger in terms of sales growth for quality assurance than the first half or should it be kind of even?

[Juha Varelius, executive]

I would keep it pretty even now. I mean, yes, of course the -- you're right. I mean your logic is right. That's probably going to happen. I mean the fourth quarter is going to be the busiest. Right? And we're building up specifically the Axivion activities and whatnot. So yes, it's accelerating. So -- but I mean the difference is -- on monetary-wise, the difference is going be so small that I wouldn't try to guess the number. But I mean logically, what you're saying is true and probably not -- this is going to happen. But I don't think the difference is going to be -- on euros, it's not going to be that big, that I wouldn't spend too much time on it roughly.But we see a -- like I said, we -- when we started Qt, we started -- well, we were kind of very happy when we got a EUR 100,000 deal, not opening champagne bottles, but very happy. And then it started slowly growing and we hit EUR 30 million and then EUR 40 million, EUR 50 million and so on. We're pretty much on the same track on QA. And then we were -- of course we were building our sales organization and what, so what we -- if we're looking to squeeze sales and selling to existing Qt customers, our existing sales network can do that very well. Squish fits very well into majority of our Qt users. And there we are -- we have covered only a small portion of that customer base. So there is still a long way to go and our existing sales force can do that sales.When we're going and selling Axivion outside of the Qt ecosystem, it is -- there you need more expertise. So some of the Axivion sales guys might be our own old Qt sales guys that are trained specifically for that. And then we've also hired new sales people, mainly from a background that they've been selling testing software before in their career. So basically from competition, right, and to bring in more knowledge that how to sell QA in that sense. And they are all in the same sales organization, so they work under same management. But we need to start specializing because the products and the needs and the target groups are getting a bit different. So for one salesperson or one presales engineer, if we talk about our design tools, our MCU offering, our Qt offering, we talk about the Squish, Coco and Axivion, it's getting so complicated that for one person to be able to handle the whole portfolio is probably too much. So we need to a bit specialize in ourselves as well as in the presales, in that sense.

[Matti Riikonen, analyst]

All right, so did I understand correctly that if we think about the modeling, you are -- or the fluctuation between how different individual deals land in the quality assurance business, they are far more important than kind of seasonal thinking that there would be more deals in second half, less in Q -- first half, so on?

[Juha Varelius, executive]

Well, like I said, on Squish and Coco, it's -- the volume is higher and it's more like a steady growth quarter-on-quarter. On Axivion, there is more fluctuation. And over there, we see that it's very important to build the pipeline. And where the deal lands there is because the euro value -- the euro revenue for Axivion is still so small. So percentage-wise it's a big fluctuation, but yes, as it grows, it's going to be on more on a steady growth, yes. So in that sense, there is a bit more fluctuation. And it's a similar type of a business as Qt business in that sense that the QA business, it does have a quarter-on-quarter fluctuations, yes.On Axivion side, it's also very much like a Qt-type of a business, that in the beginning, the customers usually buy a bit smaller chunk of licenses. The first deal is, say, a bit smaller and then it starts growing and the follow-up deals to existing customers are bigger. So we're going to see the same type of a revenue fluctuation on license sales on Axivion that we're seeing on -- we've seen on Qt as well. So in that sense, they're similar.

[Jaakko Tyrväinen, analyst]

Jaakko Tyrvainen from SEB. Would like to continue on the softness in the distribution licenses. Was it just the existing clients' end product sales volume were just lower than you expected? Or was it because of perhaps postponed new product launches or did you see some kind of inventory cycle issues in this quarter?

[Juha Varelius, executive]

Well, inventory cycle issue it could have been which, like I said, when -- some of our clients, they buy distribution licenses upfront and once they are used, then they buy the next chunk. So what's the reason that there's been less buying? Don't know. Have we seen any product launch postponements? Not that I'm aware of. Because usually when we are in that situation that you have the production facility, you have ordered all the parts and everything, you basically make the product. So what usually happens is that you produce the products, maybe you lower the prices like we've seen on electric vehicles, that some brands are coming fast down on prices.But what's -- so we don't usually see production cancellations or at this time when we're -- when we talk about distribution revenue, when we talk about the developer license revenue early on, on a process, we may see that everything is ready, but the customer doesn't sign the deal because they are postponing the start of the development design. So they don't start designing the new product, they postpone that start of the project. But if we are in a distribution license phase where the production is already -- everything is ready and you just produce the product, we don't see a cancellation on that. It's too late for that.So what we see on a developer license sales that we may have a -- everything is signed and everything is waiting, but the customer decides that, well, now it's -- let's wait another quarter before we start designing and -- well, designing that, how are we going to be manufacturing this new product. So there we may see deals delays, but not on a distribution license. So if -- so not that. But of course, when people buy their distribution licenses upfront and they don't consume them, how long it's going to take them to consume, what are the reasons, we don't necessarily know.

[Jaakko Tyrväinen, analyst]

And could you point any specific end client industry where you saw the [ response ]?

[Juha Varelius, executive]

No, I can say it was Europe.

[Jaakko Tyrväinen, analyst]

All right, sure. Then on the license renewals, could you give us some kind of indication how the expected license renewals, both 3-year licenses and 1-year licenses split throughout the quarters this year? Of course, the Q4 will be the highest. But any comments on Q1 to Q3 split?

[Juha Varelius, executive]

Well, I don't think we've opened up that split that how that goes. But what I can say is that it's -- we were cautious that is that going to change so that if the mix is going to change. Last year, we did have a bit that people were buying more 1-year licenses than 3-year licenses. And we were thinking that, well, if that split is going to change, that split has changed, that people are buying more 1-year licenses than 3-year licenses, is that going to affect our renewals business this year, that instead of 3-year licenses, people will renew from 3 to 1? Well, that seems not to be the case. So people are renewing pretty much on the rate that we were expecting, and we don't expect there now to be a bit of a change.I think that over time -- well, better not to give you a percentage out of my head, but -- so we do have roughly 2 type of customers. We have customers where the Qt usage is very extensive. And you can say that Qt is almost like in a bit of a platform in the whole development they do. And those customers tend to like longer licenses. They even talk about 5 or 10-year licenses, which we don't sell. Right? Basically, it's just too long over time. But they are looking for certainty going into the future. They are looking certainty that they do have those licenses and whatnot.Then we do have -- we do see the same scenario also in China, and for very obvious reasons over there, the customers are thinking that they would like to buy perpetual licenses so that they are for the lifetime. We don't sell them either, but the [ app ]. So there are these type of things, and then there are customers that are using Qt, they're using maybe other tools and whatnot, and it's business as usual. And they're usually a 1-year license. They are happy to pay a bit more. All the other licenses they're probably buying, starting from Word and Windows, they buy 1-year licenses and they pay a bit more and then they adjust what they need year-on-year.And so those are kind of the 2 categories we see. When interest rates were zero and money was free, then we saw that people were thinking a bit that, well, if I buy a 3-year license, it makes -- from a CFO point of view, let's spend the money and buy a 3-year license now and we get a fixed price for 3 years and money doesn't cost anything. Now the CFO's are looking that, well, it doesn't necessarily make sense to -- just to get a lower price, but that's basically the brackets.I know I'm not answering your specific question here, but I don't think we've given out that split in public. But now it seems that it's kind of a leveled level. So it seems to be pretty steady. So it's not changing anymore like it was doing last year. At least this first quarter was pretty much steady what it was before.

[Jaakko Tyrväinen, analyst]

You're sticking to your guidance. What are the key risks or concerns you have in terms of not reaching your guidance this year? What would have to happen? What keeps you up -- awake -- up at night?

[Juha Varelius, executive]

Nothing keeps me up at night. But yes, well, like I said, I'm pretty confident now on the renewal business. That's -- the renewal business, I'm -- it looks to be going very steady. What we budgeted, it looks to go where we think on where we planned. So that seems to be very robust. People are renewing into the licenses they have and whatnot is going according to the plan. I see that the Qt developer license sales is going very steady. I mean, it's been amazingly steady all these years. So I don't expect there much of a fluctuation. I think Squish is pretty much going steady bang on. It's the budget level. And of course, these 3 items, they may even exceed what we've been budgeting and what we've been guiding. So there is a chance that it goes even better.Then if we go on Axivion, it's an early business and the timing of the last deals, are they going to come on a fourth quarter or are they going to slip on the first quarter? There you have a bit of a risk that, are they going to hit the whole year number? But in a whole scheme of things, they are still small numbers in our big environment.If I look to consultancy, we've budgeted it to be a small growth stroke flat, basically. Do I -- is there a big risk that -- even if it would decline, again, we're talking so small number. It's revenue-wise so small in this bigger picture that it doesn't have an effect. So I'm not too worried about that. And so that leaves that the biggest unknown fluctuation we really have is the distribution license revenue, and that's the -- if I would have to be awake at night, that would be the one.Then if I look to the markets, I think that U.S. I'm not too worried about it. We have a good team over there and there is a high level of energy and execution. I'm sure they'll find a way to meet their numbers. Europe is a kind of a -- well, I think that Europe is going to be slow forever, but some say that there might be some growth in this continent. We'll see. But from a business-wise, I think that the U.S. economy seems to be -- even the interest rates are high and whatnot, it seems to be amazingly strong and flexible, whereas Europe is kind of fragile. And if I look into Asia Pacific, we see in -- there, I'm not too worried about, I mean, Japan, Korea. Well, Korea is kind of a -- it's more like a key account market. We have few very good and respected key accounts over there.China is doing really well. I think that China is going to be the biggest electric vehicle manufacturer in the world. That's not even far. We are very well positioned in China and we are doing very good in China. I think that the trade wars are behind the corner. So one day we're going to have challenges -- I mean, global challenges regarding to China. But if I look the business for this year, the activity -- I mean, everybody talks that China is not growing that much that it used to and all that. Yes, that is true, but the activity over there is still very high. The energy level is very high, and we're having a lot of meetings over there. And Japan is a big embedded market. We've -- we're there. We have our respected key clients over there and we're getting new all the time. So Asia Pacific as a region, not too worried about.So on a markets, I would say that Europe is a bit that we're kind of -- I was kind of thinking that we would be growing already in Europe. Well, not quite. So let's see when the growth starts and when the interest rates really start coming down. Then, well, you all know that if the interest rates in Europe come down, euro is going to be weakened. And then again, how our -- what's going to be the effect on the European economy, we'll see, but -- so I'm not too worried about. It does have effect, but then we are on 3 continents and 2 of them are doing really well. And I think that Europe is going to be doing okay.So to summarize, distribution license. It was a long answer for one simple.

[Felix Henriksson, analyst]

Felix Henriksson, Nordea. I have 3. I can take them one by one?

[Juha Varelius, executive]

Let's take one by one.

[Felix Henriksson, analyst]

Yes. Starting off with the list price increases for 2024, what have you implemented in your product suites so far, and how does that compare to the ones that you made in 2023?

[Juha Varelius, executive]

We haven't increased our prices so far yet, so that's yet to come. I think that all the price increases we're going to be having this year, more or less like inflation or a bit more. I think that if -- I think that where we need to look into our pricing is the distribution license, I think our -- if I look, the developer licenses are fairly on fair value, so to speak.

[Felix Henriksson, analyst]

That's quite clear. Then a housekeeping question. In Q2 2021, you signed up really large -- I think it was a EUR 6 million deal in the developer license business. Can you confirm whether or not that was a 3-year deal and if that's coming up for renewal this quarter?

[Juha Varelius, executive]

No. It's that, can't confirm or not going to answer at all.

[Jouni Lintunen, executive]

Last time we discussed that it's not going to happen this...

[Juha Varelius, executive]

Yes, yes, okay. Yes, so it's not going to happen, yes.

[Felix Henriksson, analyst]

Fair enough. That's clear. Then a bit of a broader question. You've announced these collaborations with silicon vendors Infineon and Qualcomm and also your entry into AWS Marketplace. So could you just talk through the commercial and financial implications of these deals to your business and how we should look at them as analysts?

[Juha Varelius, executive]

Yes, yes. Well, first of all, to be able to do such deals with such household brand names means that you're a credible player and your technology is credible and you're a credible company and you're a credible player and you're identified as such. So that's, of course, important for us and so that's kind of a reference for the other players in the market that we can do such partnerships.If I look the Infineon, I think that -- well that's -- first of all, I'm very happy to say that the cooperation has started very well. We've had our first successes on doing some deals together. They put a lot of effort into this cooperation. So it's not only that, hey, let's do this. Many times you have this type of a deal, so it's that, hey, let's make a deal and make an announcement and then you're on our partner portal and nothing happens. Right? But in this particular case, they've been putting effort, we've been putting effort, we've been training our sales, we've been doing joint marketing and whatnot, and we've been gaining results, early results. And that's of course on the MCU side. I think per se, that the MCU, in years to come, it's going to be a big business and because you have all these 2-wheelers, scooters and whatnot. So you have a lot of products where the amount of hardware and software is very limited and the user interface is fairly simple. And so that market is kind of opening up.So if we look, this business is a bit of Internet. When Internet started, it came into telcos and then finance and media. So what we saw on this, digital came into cars, came into medical and whatnot. And now it's -- we're seeing digital user interfaces in smaller and smaller and simpler and simpler devices, so to speak. And that's where the MCU market kicks in. Do I think that -- it's a joint business starting from zero. So do I expect that there are going to be a huge amount of revenue this year? Of course not, because all businesses, when they start from zero, it's going to -- it starts slow. Do I believe in this cooperation that when we get our act together and we start working together on both customers that we have, is it going to be successful in the years to come? Yes.On Amazon, same thing, pretty much the same story. I don't -- it's starting from zero. I don't expect any meaningful revenue that would affect our top line this year at all. So it's early starts, but it kind of tells you that when we started this business, we -- on Qt business, we had many small competitors. We were about equal size. What we did, we invested quite a lot of -- we invested on horizontal product and then we invested our own sales network, whereas most of our competitors invested on very focused use cases, on specific industries. And they relied on, well, maybe on their own sales because they had such a small number of clients to reach to or resellers by that time. And that led into that those competitors are pretty much gone, sold or they're still very small. So we were able to grow.So if I now see that, how are we going to get the next big boost on our sales? Of course, we have our own sales network, we're investing on more products. So many of our Qt users are also using our testing products and whatnot. But I also see that we need to build a meaningful partner network like Infineon and be able to combine 2 best products in the world and offer them commonly to our common customers and get even more visibility than we can do on ourselves. And I see that, on a strategic level, if we can succeed on that, we're going to take the next big jump going forward, and that's what we're trying to do. So I'm very excited about these opportunities and we're going to have more in the future.

[Felix Henriksson, analyst]

And as a quick follow-up, can you disclose anything about sort of commercial and revenue models and the margin implications from these new sales channels?

[Juha Varelius, executive]

Well, like I said, this year it's going to be very small, so it's going to be very small.

[Felix Henriksson, analyst]

But what about the margin profile in these new...

[Juha Varelius, executive]

No. Sorry. No.

[Waltteri Rossi, analyst]

Waltteri Rossi from Danske Bank. Only a few questions that have not been answered yet. On quality assurance, I understand that the quality assurance space is kind of very fragmented and competitive. And I do understand your edge when you kind of tailor the quality assurance tools to fit the Qt ecosystem. But what about the -- when you look at further than the Qt ecosystem, what's the competitive edge there with your QA tools?

[Juha Varelius, executive]

Well, yes, it's a good question. Well, one competitive edge, obviously, is that the market is fairly fragmented. It's a lot of small players and they don't have that much -- they can't put -- they don't have such a reach than we do. Right? We do have the global sales network. We can roll out things globally. So basically just we are more capable and more effective on selling. We are more capable and more effective on marketing, that's for sure.And if we looked at what that market is, it's like in Qt in the beginning that they are concentrating on very, very focused market, very focused or very focused user industry group, maybe geographically, also very focused, just like our competitors did with Qt in the beginning. And we are focusing on to be able to offer a more broader product portfolio. So our aim is that instead of you buying 5 different quality assurance tools to do your quality assurance testing, you can buy 1 or 2 tools from Qt and then you're covered. That's basically what we believe in and that's what we are executing.

[Waltteri Rossi, analyst]

All right, sounds good. Then thinking about the Qt, like current customer base, how big of a portion of that already has bought the quality assurance tools?

[Juha Varelius, executive]

Well, we don't disclose that publicly, but to give some sort of an idea, way less than half. I mean, way less than half.

[Waltteri Rossi, analyst]

All right. That's something. Lastly, well, any ballpark kind of estimate on the growth this year in quality assurance?

[Juha Varelius, executive]

On quality assurance, well, we don't -- we haven't -- I think we're going to start opening up the QA as a separate business next year, probably. But I've sort of given this kind of a guidance that, at least intentionally, we would not buy anything that would dilute Qt numbers. So that gives you -- neither on top line or EBIT line, so you have at least some sense.

[Antti Luiro, analyst]

Antti Luiro from Inderes. I'll try to do a quick one.

[Juha Varelius, executive]

Yes, because we have 3 minutes.

[Antti Luiro, analyst]

Indeed. So on the new customer acquisition, you mentioned that's going to be a focus area for you. What are the concrete actions you're taking on that side? You mentioned partnerships as being one, kind of a channel sales kind of a thing. How does this look like otherwise?

[Juha Varelius, executive]

Well, new customer acquisition is always the -- we have an approach where we actually have a big list of target customers. Our marketing is targeting those customers. We're trying to get -- we're doing kind of our different types of prospecting. We're using different kind of prospecting tools and mechanisms and working. And then we have dedicated teams. So we have teams that their only purpose is to hunt new customers. So they don't -- if old customer wants to buy more, it goes somewhere else. So we do have new customer acquisition teams and they have targets, and then we have marketing and whatnot supporting. On -- that's kind of a -- and that's the pure new customer acquisition.Then we have, of course -- many of our customers are like Fortune 500 companies, which they have very many different divisions throughout the world. So if you take a big international company, we might be on 1 or 2 divisions, but -- and they are -- there are 15 left. And those customers, on our sales, we've targeted. We call it enterprise sales. And if you are an enterprise sales, then you have a named customer, Company X. And then your job is to take care of that, the existing business there is, but also to grow your business. And in a sense, if you are in a big international company and you can win new divisions, we consider that as new sales as well.Okay, so we have 30 seconds left, so we won't take any more questions. Thank you very much for coming here today. Really appreciate it. Thank you, everybody online over there.To sum up, well, I think we've had an extensive, very good questions over here, so there is not much to sum up. We're not entirely happy on Q1. We're working very, very hard to make this look better. The market environment and the future gives us confidence. Our pipeline situation gives us confidence that this is going to be a good year. And we believe that we're going to meet our guidance target on 20% to 30% revenue growth, which is definitely our #1 priority.Thank you very much.