Qt Group Oyj

OMXH:QTCOM

Earnings Call Analysis

Qt Group Reports Moderate Sales Growth

Qt Group's Q4 results revealed an 18.3% increase in sales to EUR 59.3 million, with a solid EBITDA margin of 43.8%, demonstrating scalable profitability. Despite a good year, the company aims higher. The subscription transition led to a declining maintenance segment, but license and consulting rose by 20%. Fluctuations in revenue are expected to continue due to deal timings and exchange rates, with 60% of sales in non-Euro currencies. Personnel increased to 775, with growth investments focused on R&D and sales. Acquisitions in the quality assurance business, including Axivion and froglogic, suggest a promising future to expand the addressable market beyond Qt's core offerings.

Revenue and Earnings Performance

Qt Group's robust performance is evident in the 18.3% increase in net sales in the final quarter of the year, hitting €59.3 million, signifying a strong end to the year compared to prior expectations. The full year wasn't quite as strong as the company wished, with a growth of 16.4%, or 18.5% when adjusted for currency effects. The EBITDA margin for Q4 was an impressive 43.8%, underscoring the profitable and scalable aspect of the business. The expectation is that profitability will continue in the future, predicated on effective management.

Profitable and Scalable

While the company experienced solid revenue growth, they indicated a willingness to trade off some EBIT (earnings before interest and taxes) for even higher revenue growth. Nonetheless, the combined revenue growth and EBITDA percentage exceed the target of 40%, a challenging benchmark to achieve. Despite being behind targets, they recognize the need for further efforts to enhance growth.

Strategic Acquisitions and Market Expansion

Continued investments are being made to expand Qt's market presence beyond its traditional ecosystem. The successful acquisitions of Axivion and froglogic, which brought new quality assurance products to their portfolio, not only widened the product range but also expanded the addressable market, as these products can be used with programming languages other than Qt's. This move positions the QA business at a growth point similar to Qt's in 2015, forecasting substantial future growth.

Operational Growth and Personnel Expansion

To support the company's growth trajectory, headcount increased to 775 by the end of the year, with further growth investments planned. Most of these increases are expected in the R&D and sales departments, aligning with the company’s focus on innovation and market expansion. Personnel expenses went up by 7.6%, indicating a disciplined growth in spending proportional to the expansion.

Revenue Volatility and Segment Fluctuations

Investors should note the expected fluctuation in revenues, which will likely vary quarter-to-quarter. This volatility stems from the timing of deals and is applicable across different business segments. Understanding this pattern is crucial for anticipating performance not just over the entire year but within each quarter.

Licenses, Consulting, and Revenue Streams

License sales and consulting saw a 20% increase, while maintenance revenue decreased by roughly 30%, as anticipated. This shift is part of a strategy moving towards subscription-based licensing, with the company nearing the projected bottom of this transition. While this reflects a significant structural shift in revenue composition, it aligns with the company's future-oriented business model.

Earnings Call Transcript 2023-Q4

[Unknown Executive]

Hello, and welcome to Qt Group's Q4 and Full Year 2023 Results Presentation. I'm [indiscernible] Communications lead at Qt Group. And today here with me are Juha Varelius, our CEO; and Jouni Lintunen, our CFO, who will be sharing the results.

After the results presentation, we have time for questions. We will be starting from the room here. And if time permits, then we will have questions from the conference call. But without any further ado, Juha, please go ahead.

[Juha Varelius, executive]

Thank you. Good afternoon, everyone. My name is Juha Varelius, I am the CEO of the Qt company. And we have a pretty much same agenda as usual. So Q4 '23 and full year business highlights. Then Jouni is going to go through the financials, and then we have a quick view on the outlook and guidance for 2024.

So business highlights. Our net sales grew 18.3% at comparable currencies, and we reached EUR 59.3 million in quarterly net sales. So Q4 was good, but we didn't quite get where we were looking for. So it was a moderately good year, but we are not entirely happy for it. Was there something exceptional on the happening on Q4? Well, it was a good quarter, but we didn't quite get to where we were hoping to.

Our license sale is developing. If we look number of licenses, they are actually developing pretty much as we were predicting. So in that sense, the -- it was all good. The mix of the licenses people were buying -- our customers were buying a bit more on 1-year licenses than 3-year licenses, and that had some effect on our sales. Consulting was a bit of a soft for whole year, and it was also soft on Q4.

If I look our run time revenues, distribution license revenues for the whole year, well, we were saying already in the beginning of the year that this is going to be a good year. Well, it's -- I can say already on our outlook that this year is not going to be -- the growth is not going to be that fast. The distribution licenses will be growing on a very nice pace, but not as fast as last year.

Our EBITDA margin on Q4 was 43.8%. So that is a proof that this is a very scalable, very profitable business. And looking forward, we don't see -- of course, we need to manage the business very well to be able to make such profits, but we expect to be a very profitable going on in the future as well. And the profitability is going according to plan.

So of course, we see the costs and the revenue and we manage both. Going forward, again, for the future outlook, we are not -- we're going to continue our growth investments as planned like we did last year, and that's the plan going forward. So you're going to see the Personnel totaled 775 on December 31, and we will continue our growth investments. They are hiring people, doing R&D and such.

We did a Qt World Summit. Why I want to highlight it over there, there were again over 1,300 participants, mostly developers, tech product management. Attendees from 38 different countries. And we had customers like Sky, Konecranes, Mercedes, KDAB presenting over there. So this technology is doing well. When we have a summit like this, where actually you need to -- they are actually payable summits. We do have a great participations in this. There is a latter excitement and energy in this -- these events we have throughout the world. So this was one in Berlin. We have smaller events throughout the world all the time we speak.

And so the technology is doing well. There are more and more developers coming into this ecosystem. There are developers using this. We have more very well-known brands. And the feedback on our technology is very good. So it is that people are always very excited about the fact that it is even better than they were expecting.

So in that sense, we can say that it was a successful year for our growth strategy. Our operating margin was above estimates. EBITDA was 30.6, so it was above what we were expecting and net sales grew 18.5% on comparable currencies. Of course, if I could change, I would rather have a bit more revenue growth and a bit less EBIT, but we're very happy with those numbers. They are still, we've said that we like to have a revenue growth percentage plus the EBITDA percentage, 40% or more, and so -- which is actually very difficult to achieve. And we are happy with those numbers, even though we were behind targets and we need to work harder basically to get on a more accelerated growth, which we will do.

Like I said before, we actually reached pretty much on developer distribution licenses, the number of licenses, but the mix was a bit skewed and on growth, especially on our very strong industries like automotive, consumer electronics, medical. Well, defense and aerospace is a very hot, as you know, at the moment, unfortunately.

We are continuing our investments to get Qt out of the Qt ecosystem. So we have our Qt A business and -- quality assurance business. We're very happy on our both acquisitions on Axivion and froglogic. So froglogic had the Squish and Coco and's Axivion is Axivion product, and we are very happy how they developed last year, and that looks really promising going forward.

Not only we do have new products to our portfolio for our sales force to sell, but in this product development cycle of our customers, but it's also expanding our addressable market because our QA products, you can use them also in other languages, not only software that's being developed by Qt. And so therefore, there is an even bigger market potential than Qt only. And we see that important going forward.

We haven't given any official numbers. And -- but my feeling is that our QA business is like Qt in 2015, so I -- we expect that to grow substantially in the future. We look all our products that they need to be independently competitive. So we want to see that they are independently so competitive that the people can buy either one or all of our products. So in that sense, we're not looking that we're going to subsidize Qt business or QA business. So they need to -- that's why we keep them separate. We want them to be so competitive that they can stand alone, which they are, as a matter of fact.

Where are we going to be investing going forward? Well, R&D, sales those are the 2 biggest units we have. And there, we're going to see the most headcount increases going forward, and that will continue. We do have a longer-term plan. We're looking like 3 years ahead, and we're executing that plan, and we're not making any changes on that. And the headcount added during the year was 87. And now I hand over to Jouni and he can walk through the financials.

[Jouni Lintunen, executive]

Thank you, Juha, and welcome from my behalf as well to the Qt Group earnings call. My name is Jouni Lintunen. I'm going through the financials, and let's start from the repetition on net sales. As you have said, we saw 18.3% increase in net sales in Q4 and comparable currencies. Headwind from the exchange rate was EUR 1 million -- EUR 1.2 million, namely coming from USD sales, which devaluated.

We are seeing the maintenance part still going down this year, and that's running because of the fact that we have been in transition into subscription license mode. And I mean, now we are close to the bottom of kind of proportional part of those figures. We increased the licenses and consulting part by 20%. And for the full year, we reported a 16.4% net sales growth and then comparable currency is 18.5. And similar kind of an analogy on the licenses and consulting growing by 23% and maintenance, roughly going down 30% as expected and planned.

We will keep on seeing the strong fluctuation in revenues quarter-to-quarter. And that's driven by the timing of the deals, timing of distribution license deals and also that applies to between the specific segments as well. There are different segments in different kind of part of the life cycle. Also, we see that the exchange rates will keep on impacting going forward. Roughly 60% of our sales are other than Euro.

On P&L side, I'll walk through the operating expenses part on Q4 and then start talking about the full year below that. You see there net operating income, which is the income from the events that we are arranging. And I mean, well, one of the big ones, obviously, was Qt's World Summit in Q4. Materials and services bucket is down by 35% consistently throughout the year. And that's driven by the softness of the consulting business we have been seeing. That's to offset the negative impact from the kind of a softness in revenues and the spend is as well adjusted by that.

Personnel expenses are up by 7.6% to EUR 23.4 million. It's proportionally somewhat -- a little bit less than the headcount increase, and it's an indication that the incentive accruals are smaller than what they used to be last year, somewhat smaller. No significant change in depreciation part. And then the other operating expenses are on the level where we see are good now to execute the growth investments.

We did grow our headcount, as Juha said, by 87 employees. And that's roughly the organic pace we have been seeing 2 to 3 years in the past as well, and we keep on going on with these kind of figures. This leads to EBITDA of EUR 25.9 million for the fourth quarter, i.e. 43.8%, up by roughly 8 points -- 7 points -- sorry, from last year. And there is no change in amortization. This is the account which books the depreciation of intangibles for froglogic and Axivion acquisitions. So it's EUR 2 million a quarter. And this leads to the EBIT margin of 40.4%, up from 32.7%.

The full year view is pretty much similar. We see Materials Services being lower than last year. Personnel expenses are up by 17%, and that's driven by the headcount increase, but also from the fact that Axivion has been part of Qt for the full year of '23 instead of 5 months in 2022. And no major changes in operating expenses over there.

EBITDA for '23 is EUR 55.4 million, 30.6% up from EUR 27.2 million. And EBIT operating result is EUR 47.3 million, 26.2%. Our financial items negative EUR 2.5 million consists of interest and loan, some bookings for the amortization of the intangibles relating to the acquisitions. And then the -- and for most post unrealized exchange rate impact in the balance sheet.

And then profit before taxes is EUR 44.8 million. And in '23, our effective tax rate was 21%, which is in line with our targets and plans also going forward. And net profit from -- for the '23 is 35.5% or 19.6% and EPS EUR 1.40. Our cash flow was EUR 40 million last year. It's driven by the EBITDA development. And then the -- on the asset side, well, cash was EUR 34 million. We see increase in accounts receivable. We see increase -- somewhat increase also in contract assets by EUR 8 million and EUR 2.5 million, respectively. These are in line with the volume increase we are seeing.

On the other hand, we do see also EUR 2-plus million increase in deferred revenue also at the end of the year, which, I mean, is on the other side. In the equity liability side, it's foremost parts movement from long-term part to short term what comes to loan and the earn-out balance sheets. And yes, I mean that's -- it's -- that's it for the balance sheet side. And now I hand over back to Juha, who will talk through the outlook and the guidance for 2024.

[Juha Varelius, executive]

Thank you, thank you. Well, the long term haven't changed. It's the same. There is a strong demand for software design development and quality assurance tools. So the amount of software is increasing all the time as we speak, we're seeing more maybe software being developed even using AI and whatnot and all that needs to be tested.

So what we see is that the software defines the value of the product. There are new products coming into the market that software needs to be tested. So -- in that sense, we see a growing market going forward. And with QA products now into our portfolio, our addressable market is even bigger.

The software is coming increasingly complex and well, in every day, products and sort of also on a safety-critical products. So you can imagine that if you're driving a car, the software handling your brakes, you do want those brakes to work in every environment and so on and so forth. So we see that the part of our product -- these bigger products, of course, we have Qt in sites. We have design studios and whatnot. But if we talk about the Qt and our quality assurance products, we see a very promising market going forward.

Well, and then there is this disclaimer that, of course, we do have works in Europe and we have uncertainty here and there. Although I think that the -- this is a personal view, but my feeling is that the -- we're kind of approaching the bottom. And this year is actually the latter part of this year will be a better and it's been so far. The -- but of course, we do have the global economic situation that may affect on our sales and when it does, like I've said before, it doesn't affect so much on our developer license sales, but we can see it on our distribution license sales. So that's -- so people are buying less products and that's where we see the effect.

If we look at the guidance for 2024, we expect the full year 20% to 30% growth and EBITDA being 25%, 30% in 2024. As usual, the beginning of the year will be slower and Q4 will be extremely busy. So we don't see any change on that. Really, the customer behavior is pretty much the same.

If we look a bit more in detail, I think, well, we do have quite a lot of renewals, 3-year renewals coming this year, more so on maybe a bit more on the second half, but we do have a experience what's been happening over there. And it seems that the -- what people have had, what they've originally purchased that's what they budget to continue, going to make sense. And so we see that if people purchase their 1-year license, they renew 1-year. If they purchase 3-year, they renew 3-year. That's our -- that's how it seems to be working at this moment.

So looking on the renewals and renewals growth for this year, we are relatively comfortable how it looks now that it's going to go according to the plan. If we look at the new sales, the mix, what we have, well, we've gone over -- we've made our budget on what happened last year, so we feel pretty comfortable on that. On distribution license revenue, like I said, do not expect that to keep on growing at the pace it did last year. The growth will continue, but the pace will be slower and reason for that is that last year, we had a big -- customers with big projects launching. So it was better than it's going to be this year, but it's going to keep on growing. We're very happy about the distribution license revenue because the -- it's a good add-on on our revenue mix. So we like it and it's developing healthy. And that's actually the part where we -- it's the hardest to estimate because it does the economic situation, that's where it affects.

People usually -- our customers have their budgets and plans, what they're going to develop this year. They're going to buy those licenses, they're going to buy those renewals, and that's going to continue. There might be a -- and I don't expect that to affect a whole lot on our numbers. But of course, we've seen now. If I look a couple of years back, then it was a question that there weren't enough developers and our customers were looking for that, hey, how can we develop with existing developers, how can we create more? And now there is clearly cost pressures on many of our customers, and they are looking -- we know that there's been layoffs if you look in the U.S. market, for example, on these big tech companies, there have been a lots of layoffs on developers in that sense.

So now our customers are looking that how can we create more with less. Same thing, but different driver basically. And so that resonates to our sales and our basic promise to our customers is that they at Qt and you can reuse the code, you can create with less. So in that sense, that resonates very well in that environment. On QA, we do expect it to continue growth. Like I said, my estimation is that it's going to be like it's the same path that Qt had. So start small, but it's going to grow. And we don't see any obstacles over there.

On Axivion, the architecture, bid of the product, the architecture testing is particularly interesting. And also Squish and Coco, there is a great demand, not only on Qt commercial users, Qt open source users, but outside of the Qt ecosystem. So it's expanding our market base nicely. And we're going to be investing on that business quite a bit more this year. So we're going to increase the investments on QA, R&D, QA sales, and product management, marketing, so on and so forth.

Where do we invest in sales? We do have the -- all the sales is under same umbrella. It's under our Head of Sales. But since we are having so many products, we're also starting seeing that we have some sales guys that are concentrating selling more Axivion, which is more technically driven and it needs an in-depth understanding.

So we're having so broad portfolio nowadays that not one person cannot sell everything and one sales engineer cannot handle everything. That's our plan going forward. We are on this guidance. It's an operational guidance. What I've said before that we look for -- we look at the whole software development process, and we looked at where can we add value in that process to our existing customers. And we're looking acquisitions and when are those acquisitions going to happen? don't know. We're not giving them a time line. I don't want to put a pressure that now we need to buy something. We're not looking to buy revenue. We're looking to buy acquisitions like we've done so far.

We're looking to buy a world-class product that we can put into our sales portfolio. Maybe we'll see acquisition this year, maybe not, but we're definitely actively working towards that goal that we're going to expand our portfolio and further expand our addressable market.

So our long-term strategy is to be very much in the software development, software domain. And our goal really is to stay on growth path and be a growth company for many years to come. With these words, I say thank you. And now it's time for questions.

[Matti Riikonen, analyst]

It's Matti Riikonen from Carnegie. A couple of questions. I'll take them one by one. In your report, you mentioned that you had strong growth in some customer areas last year including automotive, consumer electronics, security, defense, aviation and then in industrial automation. So the consumer electronics sounds a bit counterintuitive. Could you explain that why that was so good for you? Whether the customers starting some new projects? Or was it just kind of ramp up of your Qt-made devices across the board?

[Juha Varelius, executive]

Well, it's both, but obviously, some of our customers were launching products in that segment that being developed earlier on and that drove the growth over there basically, yes.

[Matti Riikonen, analyst]

Fair enough. Then just out of curiosity, what is -- what -- how is security, defense and aviation industry, how they are using Qt? Could you give us some examples, just to understand what kind of operators and players we are talking about? You don't have to mention any names, but just.

[Juha Varelius, executive]

Very few. Well, well, unfortunately, particularly on that segment, we are very restricted giving out any information, but the -- we have -- we do have National Defense Organizations using Qt and we have very big global companies using Qt in their different programs and products. And obviously, the investments in that sector are hugely increasing, and we do expect that to continue.

[Matti Riikonen, analyst]

Right. Okay. Then the one sector that you did not mention as a strong one. So we have to assume that it was a weak one was Medical. So was Medical weak?

[Juha Varelius, executive]

No, Medical was not weak. These others were this year exceptionally good. So medical is -- it's one of the biggest verticals we have along Automotive. So it really -- I think that -- well, if you look just the numbers, the -- depending on what programs come to an end and what product launches happen that the position, just looking the numbers may change year-on-year, but Medical is doing extremely well. We have a huge number of medical companies. They're very happy with our product, and they are expanding the usage of Qt.

So I think that text in the sense is just that we had some Automotive programs, for example, hitting the market. So there were a lot of cars coming into the market. So Medical is -- we're very excited about the Medical as well.

[Matti Riikonen, analyst]

All right. So in '23, you already said that regarding distribution licenses, you had many customers starting new programs. So that gave some tailwind to the distribution licenses. But is it so that this year, you will not have the same tailwind?

[Juha Varelius, executive]

No, not in the same scale, no. So distribution licenses will grow, but not in the same scale, yes.

[Matti Riikonen, analyst]

Okay. Then if distribution license revenue grew by almost 50% last year, and you say that it's going to decline, of course, the level of -- or less growth this year, could you give us some indication where you think that it could land growth-wise? Absolute wise?

[Juha Varelius, executive]

Yes, yes. So first of all, just take correction. I don't see that the distribution revenue will decline. The growth rate will decline.

[Matti Riikonen, analyst]

Yes, that's what I meant.

[Juha Varelius, executive]

Yes, yes. And yes, where it's going to end? That's a tough one. Let me think about it a bit, and we'll come back at the end of this presentation. I do have a number. I just want to take the [indiscernible].

[Matti Riikonen, analyst]

All right. And then what kind of developer license revenue growth do you think you can achieve this year, is it going to be the same as last year? Or do you think that it could be slower growth?

[Juha Varelius, executive]

Number wise, I think it's going to be -- number-wise, it's probably -- it's fairly steady growth, yes. So I expect same type of numbers. Overall, we expect that the -- like our guidance is for the whole revenue that we're going to go 20% to 30% this year. Obviously, distribution licenses and licenses will drive majority of that growth, and I don't expect any growth from consulting basically.

And then we have the maintenance revenue due to this change in the subscription will decline. So you have a maintenance revenue that is declining a bit, then you have consultancy revenue, which basically is flat. And then the rest is growing and the whole thing is growing 20% to 30%.

[Matti Riikonen, analyst]

All right. Just curious about the consulting business last year. Is it possible that -- or could you comment on the kind of rough assumption that it could have declined roughly by EUR 10 million, so that you could have had.

[Juha Varelius, executive]

Not that much now.

[Matti Riikonen, analyst]

Not that much.

[Juha Varelius, executive]

Not that much, yes, but it declined here. Yes, millions, but not EUR 10 million.

[Matti Riikonen, analyst]

But you're not expecting the same kind of headwind from consulting as -- in this year.

[Juha Varelius, executive]

On our estimations, we start from the fact that it would stay flat. So that's kind of that this year would be flat. So obviously, we saw last year that the customers were looking into reducing costs as much as possible. So they were cutting all subcontracting as much as possible, and we had part of that as well.

Then on the other hand, we do have some big customers that are in the beginning of their usage of Qt and they have big programs going on in there. And they definitely need our consulting, and we definitely want to sell our consulting. Do we want to sell consulting outside of our key customers in that respect? No. So we do have -- on consulting, that's not our core business, and we're looking to have it so that when we have new customers coming in and starting big programs that they definitely get on the right foot, so to speak, and that's why we have our consulting over there.

So we're not actively looking how to grow that. And for subcontracting purposes only then we have our partners in our ecosystem, and they deal with that. But for consultancy company -- companies only last year, it was a tough year.

[Matti Riikonen, analyst]

All right. Good. Then finally, about productivity. You mentioned that you continue to hire new people and some of them go to direct sales where I would assume that to get some sales quota per person needs to be kind of increasing. But how scalable is the revenue model there? How much productivity do you get an increase by hiring more people and they would per person sell more when they are in direct sales? Do you see that? Or is it just flat sales per person that you can achieve in a certain year?

[Juha Varelius, executive]

Well, so usually, what happens is that if -- we have 2 type of sales and Qt is open source and good things about that is that the customers download Qt and they do the proof of concepts and whatnot. So our customers on Qt, they qualify themselves, by themselves, right? And so by the time they've done all that, then our sales starts talking with them, the customer already knows quite a lot about the product and customer has qualified quite a bit that, hey, this is something I need. Or if we approach the customer one way or the other, and we get them interested, they still do download our product, and they do the qualification that is this is a good product. Very typical, by the way, is that they compare our product to competition and then they end up choosing one, very often ours.

And once that project starts. It's usually a new program in a customer, and there is a new product that they start developing and what our sales does quite a bit is that the majority of our customers are very, very large corporations. So they have many business units, many divisions and whatnot. So what the sales is doing is approaching all those other different divisions and introducing Qt and whatnot. So sales goes into existing customers to that sense.

If I look Axivion, let's say, a proprietary product, and we need to do the customer qualification. We need to understand that for which customer and use case, this is really a good one and where there is a fit, and we need to find out the customer and do the selling. So it's more like a direct sales in -- traditional direct sales in that respect. Takes a bit -- you need to have the product know-how you need to understand the customer business much better. You need to be able to qualify yourself and on and on and on.

So in that sense, we do see an increase in our sales staff is that we are having these different products, and we need to have specialized salespeople on that respect. Do we see -- how do we see the development? Actually happening is we do get -- it's very difficult that you come into Qt sales as a junior sales. You get leads, you do a bit smaller deals and then the deal size starts increasing, then you become a senior sales guy, and eventually, you are a key account sales guy, selling to large corporations, and that's the path you have in Qt. So yes, definitely, your quota the guys that being the longest with us, they tend to have the biggest quotas because they have the big customers and large portfolios to sell, so that's how it goes.

So, yes, we do see -- actually, in the beginning, we do see a pretty steep performance development in that sense, if you want to put it like that. And now, if I look at where do we add, like I said, most people, it's not only sales, but we bought both froglogic and Axivion, they were relatively small companies. We bought them. They had EUR 11 million combined revenue -- EUR 11.5 million, if I remember correctly. And so obviously, their R&D, they're marketing, their sales, all the functions are relatively small. And if we are looking that we bought two companies with EUR 11 million revenue, and we are looking at a few years ahead, they're going to be EUR 100 million. So obviously, they are going to grow quite substantially in that respect.

[Antti Luiro, analyst]

It's Antti Luiro from Inderes. I could ask about the developer license sales and how they're contributing to your growth going forward. Obviously, it's one of your older products you're still selling it and your focus on growth in other areas like Q&A. But if we think of how they're contributing to your overall top line growth, do you think they're diluting your growth, let's say, you're targeting the 20% to 30%.

[Juha Varelius, executive]

No, no, not at all. They are in that range. Yes, absolutely, definitely.

[Antti Luiro, analyst]

And no fear of that sort of slowing down. Obviously, we've been very successful in that field. So at some point, the market is going to...

[Juha Varelius, executive]

I actually see that -- I see that growth very steady. So we -- if you look at the revenue numbers last year, the changing from 3 years to 1 year and all that mixture that has the -- that effect on the revenue numbers. But if I look at the number of licenses growth, and do I -- well, in this business, it's always -- it's hard to make a longer-term predictions. But if I look now a couple of years ahead, if I look now that the -- well, maybe a wrong phrase. But if I look now that -- don't get me wrong. Of course, I'm looking for the operational business every day and every 24/7, so rest assured. But if I look that are we kind of okay for the next couple of years continuing like that? Yes, right? So I'm kind of thinking that what moves we need to do that this continues on third, fourth and fifth year going forward, yes.

So we do -- I don't see any slowing down yet. No. Of course, when you say that, at some point, the mathematics will come, and it will start slowing basically. It just gets so big and the market we penetrate the market. So at some point, yes, that is going to be there. But the -- not for 2 or 3 years to come at all. And what happens after that? Well, of course, we can open up new segments, new markets, do more product development and whatnot to keep going.

So I do think that Qt is going to be growing very nicely for the coming years. And then we have the subscription business, which means that people are going to renewing. So what we also see that this is not something that people use for a while and then they throw it away. Instead, we see that -- so what are you going to be seeing in the long term, and I'm not talking about this year or next year, but you're going to be seeing that eventually, the Qt license sales growth will start slowing down, but the renewables will be there. So people are going to be renewing each year. So the top line growth will slow down. The profitability is going to be extremely good, and that's going to continue like that.

[Antti Luiro, analyst]

Right. So I guess, in other words, the only revenue items diluting your overall growth would right now be consulting and then the maintenance of it, like I said.

[Juha Varelius, executive]

Yes, yes. Antti, that was the case last year.

[Antti Luiro, analyst]

Yes. Yes. Got it. A bit more on the products. You've had Qt Analytics and Qt Advertising for some time. Can you comment on how those products are doing?

[Juha Varelius, executive]

Yes. Analytics, the feedback from the customers are there -- there seems to be a need. Customers like it, and they are starting to use it. And so that's good.

On Advertising, we're bit on a learning curve. We actually do have quite high volumes already. So -- but then the number of impressions and how much we generate money, we need to work on that. But the -- there is quite a lot of ad impressions.

[Antti Luiro, analyst]

Interesting.

[Juha Varelius, executive]

Definitely, it is. Where it's going to go, let's see. But yes. So there is a business.

[Antti Luiro, analyst]

Yes, yes. And on the overall product portfolio, of course, you talked a lot about QA tools in general, and that being an important part of where your product portfolio is going. When you think of investments going forward, do you see a lot of that still going to the QA tools? Or do you see other areas where you could expand as well still in the near-term horizon?

[Juha Varelius, executive]

Well, if we can turn this traffic on ad business into substantial revenues, yes. Insights, yes. We're going to have some investments over there. Design tooling differently, yes, so we're going to improve our design tooling and expand the usage of that. If I look into MCU. MCU we've had a quite a later -- well, there was the announcement of Ducati and whatnot. So we see quite a lot of -- it's supporting our acute sales, but we also see people signing up on MCU. So we're going to continue on MCU investments.

If I look into QA proportionately, it's going to get if we looked that how big Qt is and how much we invest there and how small QA is, proportionately, there's going to be more investment on Q&A. But I think in absolute terms, Qt probably still gets overall the biggest increase over there.

So we actually do have quite a big portfolio of products nowadays that are in the early phases. Some of them are developed by ourselves and some we've bought. So obviously, those that we've bought, we already got a bigger business and they are going faster.

[Antti Luiro, analyst]

One more before I give the turn away. On the expansion beyond Qt ecosystem, I think around a year ago, you mentioned that you're investing it. It wasn't yet kind of picking up super fast. But I guess now you were a little bit more positive on how the move is going. So can you explain a bit how is it right now going with QA tools to customers who are not in the Qt ecosystem? What is the response? And how are the sales became?

[Juha Varelius, executive]

It's very good. So I've set a target. Well, in the early days, when we got this product, I was worried about that we're going to turn this product business into consulting business. So I set a target internally that the consulting business can never ever be more than 20% of the revenue. So that's the top and that's it. And where that number came, well, nowhere. But the -- I set a limit. Nowadays, it's much smaller, and we are very happy that we created a product company and not a consultancy company.

If -- on QA, I've given a number that I want to say 30% of the revenue coming outside of the Qt ecosystem and why? Well, you can use Squish, for example, on many different languages. And so I want to make sure -- 2 things now that on these acquisitions. The first is that I'm saying that they need to be independently -- so they need to be so good that they can be independent. So I don't want QA to be a feature of Qt. So I don't want to end up in a situation that we kind of integrate in the Qt. And if you buy Qt, you get QA as well. I want it to be an independent business.

And the second one is that I want us to utilize the market because for our sales and marketing and for our organization, we know how to sell the Qt. We're actually very -- they many times say that people are not in Finland -- that Finnish companies are not good at selling. Well, I don't think so. I think we're pretty good. So -- but we want to -- our organization is tuned into selling to Qt customers and the Qt ecosystem. So we need to make a special emphasis that we also sell outside of the Qt.

So the target number is 30%. So 30% of QA sales needs to go outside of the Qt ecosystem. And that is the direct that we do have marketing activities. We do have sales activities. We go on the QA only seminars and trade fairs and whatnot.

And happy to say that, that's about it. Maybe I should have set 40%. So to -- the exact number is not important. The important thing is that we also capture that part of the market.

[Jaakko Tyrväinen, analyst]

Jaakko Tyrvainen from SEB. I could continue on the run time revenue and the communication of slowing down in '24 to help you with Matti's questions, do you mean in percentage, obviously, you do, but what about in absolute terms? Are you seeing the run time revenue growth in absolute terms, Euros, coming down?

[Juha Varelius, executive]

The growth rate is going to come down. I'm not saying that the distribution license revenue will come down, and just the growth rate will come down. So if the growth was 50%, I'm trying to help you that don't make an estimation that it's going to be 50% this year. It's going to be less than that. And I know that I have 30 minutes time to figure out to give Matti a guidance that what he's going to put on his excel and he has so many questions that it's hard for me to think I'm going to answer that. But yes, so the growth rate is going to slow down, but it's absolute terms, it's going to be a bigger number, it's still growing.

[Jaakko Tyrväinen, analyst]

Okay. Absolute terms, it grew EUR 14 million last year. So could it grow still EUR 14 million this year. It would be less in percentage.

[Juha Varelius, executive]

Yes. Well, let me think about that.

[Jaakko Tyrväinen, analyst]

A few words on the short-term visibility. Did you have any major de-slippage from Q4 to Q1 or perhaps for '24 overall? And are you actually expecting to close those in near term? And how is the overall sales pipeline situation in terms of the short-term trading?

[Juha Varelius, executive]

Yes, we slipped, and that's why we didn't get quite where we were targeting at, and that was very unfortunate. Every time we slip a deal, they are pretty much -- they will be closed. Because when we start looking at their deal, that's about to close. There is so much work on our side and on -- specifically on our customer side that it's not the matter of that they would turn away anymore. It's the matter of that they are -- for whatever reason, it's going to be pushed from Q4 to Q1. So yes, there were some slippages. We were expecting some slippages, but then we were sort of a couple of deals and yes they are dealt with.

If I look at the pipeline development, it's good. If I look going forward, the pipeline development a couple of quarters ahead, yes. It looks good. No worries on there. It looks that the -- we are -- we do follow -- well, we do follow the pipeline generation by sales guys. So each week, we actually they follow on sales that how much each sales guy generate pipeline and then they look at the whole pipeline and all that. So yes, we do have enough pipeline. And the pipeline generation is looking good. So no worries over there.

And -- well, it's going to be a similar year than we tend to have that the first part of the year is a bit slow and then Q4 unfortunately, is humongous. So we -- December and the last 2 weeks of December, we do -- like this year, I mean, even though we didn't get where we were planning to, still the Q4 was exceptionally big, right? And a very good profitability that seems to be the tendency.

[Jaakko Tyrväinen, analyst]

Then the renewables, you indicated that there are quite a lot -- 3-year licenses coming under renewable this year. But if I recall correctly, in Q2 '21, you had this one very large EUR 6 million deal, a very large one. So that deal, you recall whether it's 3-year deal? Or was it perhaps longer deal than a 3-year deal?

[Juha Varelius, executive]

I don't recall, but I can check. I'm not looking anything that size at the moment.

[Jaakko Tyrväinen, analyst]

Okay, but in the past, you have made longer deals than 3-year deals.

[Juha Varelius, executive]

We do, in some occasions, make also 5-year deals, on some occasions in specific markets. Not very, very often, not in -- I would say that very seldom. It's -- and it's -- customer has, say, a very good specific reason for a longer term.

[Jaakko Tyrväinen, analyst]

Yes. Then my final one, a few weeks or a month ago, you announced joining the AWS ecosystem. And could you open a bit on the commercial logic behind? And should this have material sales or margin impact in the near term?

[Juha Varelius, executive]

On the near term, no. No, I don't. We are looking -- well, first of all, we're looking at how to work better with big partners like AWS. We're also, of course, looking at how the cloud will -- what role the cloud has on our business going forward. I think they are very promising prospects for near-term revenue for this year, I wouldn't count anything.

[Jaakko Tyrväinen, analyst]

Okay. And when that business starts to generate sales, will the gross margin profile of that business be a bit different than you have now?

[Juha Varelius, executive]

No, I don't think so.

[Matti Riikonen, analyst]

It's Matti Riikonen from Carnegie. Some add-on questions. You are talking about the testing and quality assurance business that it has grown well. In some investor meetings, I hear that you have given some rough estimates of what the revenue size is at the moment. So could you kind of tell that has the business already doubled from the size that it was when you acquired it, EUR 11 million revenue? Is it already above that?

[Juha Varelius, executive]

Yes.

[Matti Riikonen, analyst]

Okay. Good. And then maybe to Jouni. You mentioned that the support and maintenance revenue is still declining due to the license model change. But when should we expect that to kind of stop declining? Is it '26 or even later?

[Jouni Lintunen, executive]

I would expect it to turn around in '24 even. I mean, we are close to the ratio where we booked this 5% of the Qt license revenue into maintenance. So it has come down. And proportionally, and I mean it will kind of reach the bottom and then it will start growing as per the license sales. So I don't expect actually maintenance -- reported maintenance revenue, it's rather flat or so. And in the second half, it might start going up again.

[Matti Riikonen, analyst]

Okay. All right. Good. Then finally, you had some challenges last year, as you said, in closing from the good pipeline and really executing the sales. And you mentioned that the pipeline for this year looks good, pipeline generation looks good. But why do you think you can execute better in 2024 with the 20% to 30% top line growth if that was difficult last year and the second half, particularly last year. So what gives you the extra confidence that you are promising that today?

[Juha Varelius, executive]

Well, yes, a very good question. First of all, we are -- when we went estimations and we were looking at how much pipeline do we need to close a particular sales, we've increased that number. So now we're -- we have a bigger pipeline to generate the same revenue. That's basically -- then we've made some changes in our sales organization to be more efficient, so to speak. And we are looking at efficiencies over there. But I think -- I would say that the bigger thing is that the -- we've -- the number of pipeline needed to close certain sales, we've increased that. So that's basically why we are more confident. So we have a bigger pipeline to close.

The uncertainty -- the other is that the uncertainty is that we are for this guidance, I would say that we are more conservative on our consulting sales achievements. So we are budgeting and we are -- when we do give this estimate, we're expecting consulting to deliver less. So we don't -- I don't -- we don't expect kind of disappointments from consulting because the bar is lower, was very complicated, was not easily to say. Well, you understood, yes. Okay. So that's one.

So on renewals, we've seen now that the people are -- we don't have a whole lot of experience, but we do have already these renewals, and we see that people are renewing pretty much the same that they've originally bought. So distribution license revenue, there potentially is fluctuation that is beyond our control in a sense that it's hard to predict that we do have -- we are in so many different industries. There are so many people paying us run times nowadays. And then so we do see that if there is some slowness somewhere, somebody else might be selling a bit more. But obviously, this economic situation can reflect a bit on that.

And unfortunately, for the whole year, Q4, again, is going to be so humongous that at the end of the day, we know -- in January 2025, we'll ultimately know that where this is going to end. We're not going to know it in the first quarter or second quarter. The impact of the fourth quarter is so big nowadays that fourth quarter actually dictates where this whole year is going to end. That's basically it.

Thank you very much for listening and watching, and we'll see you again in the first quarter results. Thank you.