Qt Group Oyj (QTCOM) Earnings Call Transcript & Summary

Hello, and welcome to Qt Group's Fourth Quarter and Full Year 2022 Results Presentation. My name is Heli Jamsa, IR manager. And with me today are CEO, Juha Varelius; and CFO, Jouni Lintunen, to present the results. After the presentation, we will have Q&A first in the room and then we have conference call lines. Without further ado, please, Juha, the floor is yours.

Thank you. Thank you, and good morning to everyone, and welcome to our Q4 results, which I can say right up front that the -- we are recently very happy about them. We had a very, very good quarter. I'm going to first talk about the business highlights, then Jouni is going to talk a bit about the financials, and then we're going to finish up on the outlook and guidance and for further questions. So Q4 highlights, while our net sales grew 39% against a very tough comparison. If you remember, in 2021, we had a very good fourth quarter. So these numbers are really excellent when we think about the comparison quarter. We reached EUR 51 million quarterly net sales, which is, of course, it's the best in the history of the company. Growth was 31% in comparable currencies. And if I look at the different regions, we have 3 regions. We have United States, North America, Europe and Asia Pacific. And they kind of changed their pole position. They are pretty much even size nowadays, even though we started the APAC was the latest for us to start. They are about even, but on this fourth quarter, the Europe region performed the best. So they were the #1 region for us in the fourth quarter. Our EBIT was EUR 17 million, and EBITDA reached EUR 19 million with a margin of 33%. So of course, we've discussed this many times before that we are in a product business. So when the top line is performing the bottom line follows pretty strongly. So I'm very happy that, if we think this fourth quarter environment when we started the fourth quarter, obviously, we set our guidance and our targets very, very high. And the fourth quarter and the beginning of the fourth quarter, the environment itself, there were lots of uncertainties. I'm going to talk about on the future outlook that, of course, there are still uncertainties. But the -- when we started the fourth quarter, there were quite a bit of uncertainty. So given in these circumstances, we're very happy that we were able to reach such great results. Personnel, at the end of the year, was 688, the increase of 37 employees during the fourth quarter. Overall speaking too much already although it's only morning. The increase on personnel is pretty much on target. What I'm really happy to see is that our retention rate, so our levers, it's still a relatively small number. So people are staying with Qt. And of course, now this in current environment, I think that the labor market is cooling off in any way, specifically in IT market and specifically in the United States, but we see it everywhere. But our retention rates i.e., the people leaving the company is relatively low. It's substantially lower than on hated IT market in general. And we've been able to recruit people as planned. I'm going to talk about that also in the future outlook. But the -- pretty much the same will continue also this year. So we're going to be hiring and adding new Qt's in our personnel. So we had a great success in our strategy execution in 2020, although the year was very challenging. The -- our distribution license sales reached EUR 30 million in 2020, and that is 38% growth compared into '21. Again, I think that the -- that is, let's say, very good results in this current environment. We all know that the distribution license sales is affected by the fact that the -- what is the current economic situation, so how much consumers are buying different type of goods. That's where the distribution license revenue is coming. Some customers are still behind on their plant manufacturing volumes. Well, that's obvious that the -- there isn't so many cars in the market that was planned and also on consumer electronics, this inflation, uncertainty and rising interest rates did affect. I think now that the worst in that sense is behind. We are kind of settled in now that things are what they are and life must go on. And now I guess the next phases are that these things are going to start getting better or getting worse. But the -- I think that the majority of our customers are in a situation that they are looking for, they're making future plans and they are making future investments. And we do see that there are new product projects beginning, starting and going in the manufacturing phase. So in that sense, I'm fairly confident looking forward that the -- how our distribution sales is going to go forward. We've been able to expand our customer base and the diversity is still there. So I've mentioned this many times before that the -- our strategy is to be a horizontal product, and it has kind of a couple of meanings. First is that the -- with one tool with our products, our customers can develop something for the low end and for the high end and everything in between, so with our product, people can build their digital cockpit for the entire car, for example, or they can build the whole line of washing machines, so from the low end to the high end. Horizontal product also means that the -- there -- we have 70 different industries, and they are a great variety of use cases, where Qt is used. Well, that, of course, minimizes the risk to some extent. We are not relying on any specific industry. But now we're seeing that, for example, medical has been growing very fast. So we talk very often about the automotive because it's easy to understand. We've all seen cars. We don't talk so much medical, but medical, for example, is -- has grown to be a very significant industry for us. We did invest -- we did increase head count last year almost by 200, 40 came from Axivion acquisition and a majority of our people go into sales operations or R&D. So that's where the majority of new hires are going. R&D, obviously, is very important. We are in a product business, and we are expanding our product portfolio. So we have more products. We have the quality assurance tools nowadays and many more to come, which means that we're investing on R&D all the time. We are making the Qt better product, and we are investing on our QA products, and we have new products in the pipeline yet to be announced on a later date. Some of the event highlights, we do have lots of events throughout the world all the time, bigger and small ones. And we do engage with the Qt community, we do engage with our customers, and we do have, like I said, different events. One of the main events for developers and engineers is the World Summit. This year, we had it on a virtual. We had 113 countries, mostly developers and engineers. We had presentations from companies like GE Healthcare, Infineon, Autodesk and BRICS over there, giving presentations, great presentations, what they've been doing with Qt, how they see Qt. And I'm sure, we're going to continue. This is -- the Qt World Summit is a major event for us to get the developers and engineers together. There is going to be yet -- this year, of course, there will be a World Summit, and I believe that might be even a physical event if the situation so permits, because I personally believe very much on people meeting each other and working together, not only it's energizes you but it helps on the innovation as well. There are some couple highlights that we did on Squish, Axivion. So the -- our QA, our quality assurance tools, Qt Design Studio is very important for us. It helps our customers to see the design on a target hardware, it enables the designers to be much more effective. And we've -- and Qt Creator 9 was also introduced. So there mainly user interfaces, improvements, making them a better products for our end users to use. And also, we're always looking for performance improvements when we do our product development. Just to give you some highlights that where do we spend our R&D resources. And like I said, we take very seriously the feedback from our customers, and we do invest quite a bit on the R&D to keep our product as competitive as they are today, which they are because like majority of the developers giving us feedback or telling us that our product is great and it's exceeding their expectations. With these words, I'm going to hand over to Jouni for a bit, and he's going to talk about the numbers. Thanks.

Thank you, Juha, and welcome from my behalf as well to the Qt Group's Q4 earnings call. And let's touch a bit on the net sales in more detail. And as you can see, we reported net sales of EUR 51.3 million in Q4 isolated. And it's actually more than 4 years back in 2018 for the full year, so pretty significant result. The net sales grew by 39%, as I said, and we're enjoying from the tailwind of USD, specifically in Q4. That impact was EUR 2.1 million. And in comparable currencies, the revenue growth would have been 31.5%. All regions performed very well. EMEA being still the strongest one for the last quarter. Maintenance revenue is going gradually down, as we have indicated earlier, and that's because of the change in the subscription license mode primarily. And it means that the license sales and consulting did grow by 49%. For the full year, we grew by 28.2%. And for the full year of 2022, the gain from FX was EUR 8.3 million. That means that the constant currencies comparable exchange rates, the revenue growth were 20% even. We did report 38% increase growth in revenue -- revenue of distribution licenses to 29.5%. And as Juha have indicated earlier, there are still some delays from our expectations in that regards. Going forward, we do not change major changes in the surroundings. We expect that the exchange rate will continue impacting us roughly 2/3 of Qt revenues are in USD. We will see a fluctuation because of large license deals and timing of the distribution license revenue streams. Income statement, you see we are executing as planned also in Q4 that we have been doing for the full year of 2020. Personnel expenses are up by fourth quarter, up by 16%, primarily because of the head count increase. Personnel increase in Q4 isolating sequential increase was 37, most primarily in sales operations side, and that's to start executing next year, so '23 targets then. Depreciation is somewhat up, and that's because of the new premises we are having at IFRS leasings. The growth strategy implementation also as well on the other operating expenses, we are doing plenty of third-party R&D. We are putting efforts on marketing. Travel is up from last year's and from 2020 because COVID is now pretty much over. And then EBITA, the operating result before interest, taxes and amortization, it's up to 36.6%. That's because of the scalability of the business. And amortization is up to EUR 2 million. Now we are reporting both amortization from froglogic and Axivion in our figures. And EBIT margin is now 32.7% compared to last year's 21.9% for the last quarter. For the full year, our EBITA margin up from 26% to 27.2%, despite the heavy investments we've been doing for the full -- throughout the year. And the same reason for amortization going up is here Axivion since mid-August and then froglogic for the full year. EBIT margin remains 21 years level at 23.7%. For the full year, the financial items are giving EUR 0.8 million good guide, and that's coming from the currency fluctuations, specifically USD. And as you see, the corporate income tax rate is rather low, and that's because of the execution of the incentive plan early in the year. And the impact in the P&L group level is on -- well, there's no tax impact on group level. However, there are some deductible expenses in parent company, and that explains that. Net profit for the year is 22.1% or EUR 34.3 million, meaning earnings per share, EUR 1.36. Balance sheet, the fluctuation is pretty much explained by the acquisitions and volume increase. Non-current assets increased up by -- actually an acquisition, goodwill and intangibles. Current assets are up by EUR 6 million. Our trade receivables -- accounts receivable is up by EUR 11 million. We grew in the fourth quarter by EUR 14 million. So that's pretty much out of that. Our cash is down year-on-year and 2 main reasons: repayment of the loan in fourth quarter that we had taken for froglogic and then the LTI program execution in the first half year. Equity, well, net profit impact and then some action on the related share issue items and then LTI Plan execution, which offset each other then. Long-term liabilities, there's the impact of the Axivion acquisition and then no major. Well, the only change in the short-term liabilities pretty much is the repayment of the bank loan for froglogic acquisition. So that's a short balance sheet. And now I hand over back to Juha, who will talk through the market outlook and then guidance for 2023.

All right. Thank you, Jouni. The market outlook for the 2023, well, if I look at the overall that -- is there still a continuous and strengthening trend towards that there will be more software in products, there will be better user interfaces and products. The products itself are getting better to the use of software, that's not going anywhere. So we see that trend continuing. We see the trend getting stronger. We see that the usage of Qt is expanding. So we see the market growing. We see getting new customers. We see specifically existing customers expanding the usage of Qt, and we don't see any change in that. If we look into the competitive arena, we see pretty much the same competitors that we've had all along, and we see our situation in that sense a bit of unchanged in -- so we don't see that we've been strengthening or weakening and compared in the competitive environment. So that's going to continue. There is no doubt about it. If I look at what's happening in the -- we hear about the artificial intelligence, we hear the artificial intelligence -- we're are going to be coders soon, which is going to type something on a computer and there is going to be lots of code coming out. And for simple applications, that's probably going to be true. So what we see is that the kind of the mass of code -- the amount of code, it's just going to grow and grow and it's going to expand even further, and there is going to be more need for it. That's good for Qt because there needs to be ways to be able to produce that code more efficiently, more there needs to be better user interfaces. And there is going to be a lot more testing. So I think that the -- our quality assurance tools, the testing, the automatic testing and also testing for the architecture of what people have been building, the demand on those will continue as we go forward. So I think that this combination, where we have Qt in quality assurance, we have these testing tools. We see a very growing market for many, many years to go forward. Then, of course, in this type of presentations, I need to highlight that they are very well-known uncertainties into the market. We all know there are high energy prices, there are inflation. There is a war in Europe. And we do see -- and when we've been giving in this our guidance now that we have, we've, of course, been anticipating that there are going to be a couple of rate hikes and the inflation is going to be on a fairly high level, both in the United States and Europe for some time to go forward. And there are still some component shortages. We see, although that's more like getting behind us. But I think that in this market situation where we are, this is kind of a new normal now that we see, we do see our customers that they are making investments for the future, and that's pretty obvious. There needs to be new products coming out into the market also this year and next year and a year after and those investments need to be made, no matter what is the situation. And I think that we are kind of on a gate that are things going to start going a lot worse this year? Are they going to start going a lot better this year? If they remain like this, I think this is a fairly manageable situation. And I do expect, as a matter of fact, that things -- this spring is going to be a difficult time for many, many companies, and the results will be in pressure. But I think that the -- going forward, the latter part of the year, things start slowly getting better. So we invest -- we estimate that our net sales will increase 20% to 30% year-on-year at comparable exchange rates. And our operating profit margin, EBITA percentage will be 20% to 30%. So very strong numbers because even at the low end, if you calculate the revenue growth percentage and the operating profit percentage, it's 40%. So it's -- our numbers are very strong numbers when you think what we're doing. So we're growing very fast, and we're doing it with a very high profit margin. If I look at the different industries, like I said, we are going to -- we are in 70 different industries. I think that we don't see a whole lot of difference over there. All our big customers are investing for the future. If I think that where we do have the biggest uncertainty as of today, it's obviously the distribution license sales. That is very difficult to estimate because if things start getting really on worst scenario and people -- economies will slow down and people will be buying less stuff that's obviously going to affect our distribution license revenue. Having said that, our distribution license revenue is coming from very, very multiple sources. So it's a very broad range of companies, where we're getting our distribution license sales. So we're not relying on one specific industry or one specific product line in that sense. It is spread out. And what we've seen is that in some instances that some places, there might be a project delays or there is less distribution of products going out. But then on some other parts, we've been seeing that the -- our customers are actually proceeding pretty much according what they've been planning to, so it kind of even outs. On developer license sales, that's much more solid. So our customers are investing for future. They are having these projects there starting. We've been adding also very big customers into our portfolio. Hopefully, someday, we'll be able to tell them. We've been deepening our relationship with many of our big customers, and they're becoming more and more strategic partners. So in that sense, I see only positive development on that arena. So overall, for 2023, I'm positive. I think we're going to have a -- it looks like now that we're going to have a fairly good year. Now having said that, remember that the quarters are not alike. Our first quarter and third quarter are usually slower. Second quarter is faster. And now 2 years in a row, the fourth quarter has been really strong. So probably we're going to see a similar type of quarterly fluctuation. So it's better to look us in a bit longer-term. If I looked at how this year has started, obviously, we're not giving any numbers out at this point of time. But if I look at our guidance and if I look how a year has started, I'm pretty happy. I mean, things are looking good in that sense. So with these words, it's easy numbers to remember, 20%, 30% -- 20%, 30%. Thank you.

Thank you. Juha let's move on to questions in the room.

It's Matti Riikonen on Carnegie. A couple of questions. If we start with the contract duration split question that we disclosed quite a lot in 2022 because there were changes to the short end of contract maturity like 1 year instead of 3 years. How does the split look like now? And what are your expectations for the split going forward, let's say, in '23 and onwards?

Yes. So the -- indeed, in second quarter, when the war started, we saw the uptick on the 1-year licenses more than usual. And then it leveled out. So if I now look on a yearly level, I would say that it's pretty stable, and that's what I expect to be pretty stable also going into 2023. So there are quarterly fluctuations, obviously, but the -- on a yearly level, it looks to be pretty stable. So not really a whole lot of movement.

Okay. And just to get an idea of what the splits are at the moment? How big a share of your revenue is coming from or the agreement pole is 1-year deals and how much is 3-year deals?

I don't -- we haven't disclosed that number, obviously, since you're asking. The -- and like I said, on a quarterly level, there is a -- there might be a difference. But to give you some idea that most of our projects usually are that people build something on the long-term. So obviously, the 3-year deal makes a lot more sense unless somehow that there is some uncertainty. And then if you just want to add 1 or 2 maybe for short-term, then you may want to buy a 1-year license because 1-year license is substantially more expensive. So in that sense, there are 1-year licenses going, but the -- if I were a customer, I would go with the 3-year license. Just that the project takes so long. I think that the -- if the situation stays like this, that it's pretty stable, then it obviously doesn't have a whole other effect. It did have effect on the second quarter, but then it leveled off. And if it stays like this, then on a yearly comparison, it doesn't have a whole other effect on the revenue.

All right. And I think you said last year that you are expecting many of those 3-year contracts that were made when the license model was changed so that they would be under renewal this year. Is that still the case?

Oh, yes, yes. Well, they're definitely going to be on a renewal. And the -- if I look at our typical customer behavior, first of all, if you've been building something for 3 years, you're pretty -- you've done a lot of stuff, right? And if I looked at the -- what are our surveys and customer satisfactions and whatnot, there is really no reason for customers to drop Qt and change to something else, if they are continuing their project. So -- and of course, we do have customers. We had a wide variety of customers doing different stuff. So if they really stop the whole product, then there is no use to continue using Qt. But usually, the product goes out and then you are in a maintenance phase and you need to keep it up and whatnot. So yes, obviously, I do expect people to renew on -- and that's our experience.

All right. Then the second topic is the kind of distribution license revenue and where it is coming from -- do you still think that you will have structural growth in distribution licenses from such deals that -- where the customers started design of a new product many years ago so that they are not just, let's say, products that are coming with fairly short time-to-market delays like 1-year or something that you have been working on for many years or the customers have been working for many years. So what's the kind of kick from those older contracts coming to the market now like cars? And is it kind of leveling off that kind of back kick that you are getting?

That's a very difficult question. Let me put it this way that the -- if we talk about the automotive, automotive, obviously, is that it takes a bit of a longer time to get the product in the market and then it stays a long time in the market. So usually, one car model, it stay -- they say a longer time. So the distribution revenues are accumulating over a period of time. If I look some of the deals, bigger deals, we made with bigger customers this year, I do anticipate the distribution revenue start coming on our bigger scale in '24, '25 and they probably are peaking in '25 for '26 -- that's why sometimes when I say that the -- on the longer-term, I see that there is continuous growth in this company. I do see these deals where I see that the volumes on distribution, on this particular deal, is like 2 or 3 years away. So it's -- I know that there's going to be growth also back then. If I look on some of the products, and I would say, now a disclaimer over here. This is a feeling, and this is a bit of a guesstimate. But -- and obviously, when I'm engaged more on customers that are the bigger ones and been longer in this business. But if I look, I think that -- what I see is that I see that the distribution revenues they are having, they are more on a growth side. And there are a couple of reasons for that. The -- I see that many of the products they are producing. I see that the products they will continue producing. They're going to be hitting the market and the volumes are still rising on those. And I also see that our existing customers are expanding the usage of Qt, which means that there are going to be a larger product portfolio coming into the market later. It's a very typical when we see our -- all our big customers, as of today, they started very small. They started with one product line and then they've been expanding it. So in that sense -- but to specifically ask what you -- to answer what you asked, it's -- I don't have that knowledge. But yes, I do see distribution license revenue increasing from our existing customers.

All right. Then 2 smaller questions. Were there any large license deals in Q4 that explain kind of good growth even though the comparison was pretty strong already?

No. Nothing spectacular work to mention and to even add on that, I might say that some deals were postponed to Q1 as it happens every time. So with a little luck, could have been even better. But I mean, in all fairness, we do always see that the -- not all the deals closed on a particular quarter, some bills go forward. But we had some bigger -- not huge humongous deals but bigger deals going also to Q1. But that's always the case. That's always the case.

All right. And then finally, you mentioned in the report that the revenue share from medical has been kind of catching up with automotive, it's increasing. But still, we don't kind of have a good idea, where these sectors are actually in proportion of your sales. So could you give some indication, what kind of share of your sales automotive is, medical is, consumer electronic is?

Yes. I've said that the consulting will -- we've said that the consultancy revenue will be below 20% out of total. And as a matter of fact, it's -- and it's not even close as we -- as of today, and it will be a smaller amount going forward just for the simple reason that all the other revenues are growing so fast. The -- I've said on automotive that I do expect the automotive as a whole in 2025 to be in a range of EUR 20 million, 20% out of the total, give or take, the -- where we are in or we're going to end up in 2025. And I still -- I think that that's roughly going to be the range in 2025. And so the -- and medical is one of the bigger verticals we're also having. So something like that.

So medical catching up with automotives revenue share, but not quite?

Well, there is -- of course, we have to -- there is also fluctuation. Well, it's going to be as important as automotive in the revenue-wise, yes. Yes.

Felix Henriksson from Nordea. Continuing on the medical topic, could you give us any help with what kind of average royalty rates per device we're talking about when it comes to medical distribution licenses? You've mentioned that on average, you're talking about EUR 0.60 per device in automotive. It's around euro or a dollar? Where are we talking about when it comes to medical?

Well, I think the -- yes, I've said that the -- when you do estimations estimate with EUR 0.60, EUR 0.70 and you get close enough. That's -- I've been trying to help you work because I know that from outside trying to analyze Qt, it's a tough nut. And specifically, our quarters -- to estimate our quarters, yes, it's really difficult. So in that sense, and I would still say that, that kind of holds in a bigger terms. We do have devices that the run time revenue can be hundreds of dollars, right? But the volume is so small that it actually from the estimation point of view, it doesn't matter. So on medical devices, you have very, very expensive devices, where the run time is much higher, right? But the volume on those devices is very low. And so in a bigger scheme of things, it doesn't affect. And then on Medical, as you know, there are a lot of devices that on a lower price range. So I would still -- if you go and estimate the volume of products out there that we might be in it and on how many products we get, if you round up -- if you use the EUR 0.60 to EUR 0.70, that gives you an idea that the -- where we could end up. That would be my guidance for the longer-term future.

Okay. So even though we're talking about quite high-tech, high-value products, which is not expect to sort of give you a tailwind when it comes to the sort of average sales price in the…

Well, yes. I mean, usually when it's high-tech and high-value, the volumes are lower. That's the case. So in the whole mass of the runtime revenue, the effect still remains lower. But of course, on medical, you also have lots of -- if we're talking about kind of surgery robots and things like that, they're very expensive, and they are not very few, if we're talking about many home medical appliances, and the price range is lower and the volumes are very high.

Then next topic is your quality assurance suite, Axivion and froglogic. Could you perhaps touch a bit on how demand for those products develop in Q4 and can you perhaps help us out with any sense of how large of a business quality assurance is for you as of today? And how it large of addressable market we are talking about?

Yes. Well, the market itself is actually bigger than the addressable market for Qt. So -- and it's a very fragmented market. There are a lot of players in that market, and we're probably going to see some consolidation as we go forward. If I look at the market itself, the one big competitor in that market is manual testing. And now if I look at the amount of code mass coming into the market, let's say, in the next 5 years, there is no way that it would be manually tested. So for tools that can do automotive -- automatic testing, the demand for these kind of tools -- it's going to be growing very fast. So I think that in general, the quality insurance business is, it's a very lucrative business. What comes into our acquisitions, with my first comment is Squish, Coco, so, i.e., the froglogic we acquired. Obviously, froglogic is very close to Qt. So for our Qt sales force, it's very easy to say, when people are building something with Qt graphical user interfaces, the next question that how did you plan to test it, right? So it's a very close fit into that. So -- and there's been a very good demand on that respect. If I look Axivion the -- we did the acquisition in August, so it's still very early days. And if I look Axivion, where I see a lot of interest on that is that the -- specifically, well, you can do static code analysis and so on, but the -- I think that testing the architecture that what's being built is the architecture good. Are there any faults on the architecture? For bigger projects, for security-related projects, which, by the way, are often related, for example, into automotive or into medical, because in the automotive, for example, there are restrictions, security restrictions, Axivion is a very great product. If I look into future that how much Code Master will be and how more complex the architectures are going to go. I see also a great demand for the Axivion product. So I was once asked that we haven't told us numbers yet, but I gave a guidance that the -- I would not consider buying anything to Qt that would actually diminish our growth rate or our EBIT. And neither one of these companies is doing it, right? So to give you some idea. If I look now at the -- Digia bought the Qt in 2020, we got the product in 2015, we separated and we came later public and we set our targets and whatnot. I see the quality assurance tools say a bit of a similar story. So I do have big hopes. I do understand that they are not widely shared, but I'm very excited. That was a joke.

Right. And finally for me, well, you're now also guiding for EBITA margin and not EBIT margin, so EBIT excluding purchase price amortization for this year. So should we read this into you having an ambition of being active in the M&A market in 2023? And if so, what are the sort of gaps in your product offering that you're looking to avail via acquisitions?

Yes. Well, that's a good question. Well, first of all, let me say that, we're not looking to buy revenue. So we're not looking -- we're not looking to do acquisitions just to grow. We're looking acquisition that it really adds value. And if we now look on the froglogic and Axivion it adds value, well, first of all, we think that there is a great need for code to be tested architectures to be tested and so on, that's being built, not only with Qt, but also outside of other technologies apart from Qt. And both our QA tools you can use, they don't have to be -- the code you test, they don't have to be done with Qt. So it's expanding our total addressable market. That's number one. We think that there are synergies that we can offer quality assurance tools to our existing Qt ecosystem and our Qt -- our existing Qt users. Then the other thing that was important in those acquisitions was the fact that we -- those products are really good. I mean, those companies that really built a very good products, we were very happy about the product, but they hadn't yet invested on sales so much. So there we see an added value that we bought the froglogic and now Axivion, and we're going to boot it in our global sales to sold globally, whereas before they were mainly sold in Germany, and we see added value from there. So a similar type of acquisitions, yes, of course, yes, I do see that there is a great opportunity to expand our product-folio even further. To do these couple of acquisitions, we evaluated like a bit over a couple of hundred companies. So we -- it's not like that we kind of re-bumped into something and bought -- and we're doing it as we speak. Where do we do these acquisitions, they are products that will enhance value to our customers in the software product development process, i.e., like you develop something, you test something, maybe there are some security type of things. These type of acquisitions you're going to be seeing. And like I said, in a quality assurance, we do see a very, very much growing demand on that because the simple code mass in the world, it's basically exploding, and that can't be tested anymore manually. And also the architectures and related stuff around it will get more complicated and our customers' will need help sorting them out. So yes, you're going to see more acquisitions, but they're going to be -- they need to add synergies. So we're not going to be buying revenue.

Veikko Silvasti from Danske Bank. A lot of good questions already asked. I still have 2. So first one on development license and consulting, sales grew 35%. So can you split or breakdown the growth to number of users growing and the price hikes?

No. I can't. I don't -- do you have that information. Well, we don't disclose that information, but can you elaborate that?

Maybe some kind of color on how much price hikes was a driver on this? And did the underlying customer base keep on growing same pace?

Yes. Yes. The underlying customer base has been growing same pace than as before. So the -- we're getting -- we're adding new customers. Having said that, the number of new customers, whether it's a small company or a big company in the beginning, they buy very few licenses, maybe 10 or 20 licenses when they start designing or they start planning that what to produce. And what really comes, say, a difference in a small company and a big company is, maybe a year or 2 later when they are in a full-blown mode, and they have like 100 developer licenses, and they're going to be looking like millions of products going out into the market, whereas the small company is still just few licenses and not a whole lot of revenue. We do have -- when corona started, we introduced to our sales team that they got a special bonus for every new logo we were getting. And during the corona times, very early on, it slowed a bit that the customers were looking. If I now look to growth rate, acquiring new customers, it's about the same. And of course, we have -- in a management, we do have an emphasis to follow that the -- what's the pipeline and we are making sure that we do get new customers all the time as planned and it keeps growing. Having said that, if I look at where the bulk of the revenue is coming, it's always coming from the existing customers when they are expanding their usage, they're shipping more products and whatnot. So the big bulk then comes from the existing customers. But of course, you need to be adding the new customers. Otherwise, some day, all the good stuff would end. But so no slowdown on that, not at all.

Yes, good. Thank you. That adds actually quite a lot of color. And so essentially, a lot of upselling for current customers, but then on the price hikes, on the team, did it affect a lot of your sales growth this year? And what's the outlook for 2023 price hikes?

We are executing price increases. No doubt. However, we have not disclosed any specific price KPI, if you -- that will, I mean, we keep it to ourselves.

Okay.

Do we have pricing power? We do. Do we see extensive price hikes for 2023? No. But of course, we need to follow the inflation salaries are going up and whatnot, but are we looking something massive? No, not at all.

Great. Then another topic, the cash flow. So it seems like the working capital keeps on accumulating quite a lot. And I find it kind of concerning this as far as I've understood, your business is so that you might sell a 3-year license, recognize it as revenue straight away, and you should get the cash flow straight away. For me, it sounds like you should be running a business with negative working capital. But then again, with -- during the last 2 years, you've accumulated EUR 30 million of working capital. So can you just describe where the cash flow is going, why the working capital is increasing? And should we expect it to turn into cash soon?

Sure. I mean, well, Q4, specifically the revenue grew by EUR 14 million and accounts receivable up by -- was it -- no, yes, year-on-year by EUR 11 million or so. So that's directly the impact from -- well, last month revenue increase within the quarter. And sure, you will see the impact on cash flow this year.

Okay. So it seems like the working capital just keeps on increasing because you're growing so fast. And then especially Q4 is heavier working capital accumulation?

Exactly. And then also the timing within the quarter has an impact.

Yes. So I definitely hope to get the cash in January, February from the Q4 sales.

Okay. And then the final question on the bigger picture. Reading through your annual report on the first page, you said, okay, we are moving towards being a multi-vendor -- multi-product vendor and so forth. So looking at 2025 and forward, what will be the kind of size of the Qt environment? And what's the QA tools and so forth? Do you have any envision on this?

I do. I definitely do. Maybe we'll -- we will come out there a bit later and lay out that picture. But like I said already before, Felix notes, a good question that I do see our QA business now. It's like Qt in 2015. So to give you some idea. And it's a very profitable business.

Jaakko Tyrvainen from SEB. Continuing on the topic of the license volumes and given that you have already 80% licenses in subscription, how much larger is the sub-scrip or the renewing license base for '23 if you compare it to '22?

Did you understand?

So you must have licensees to be renewed in '23. How much larger is that base compared to '22?

How much bigger is the license base? Yes. Yes. Okay?

Well, I guess, 2 points. We did start this project back in 2020, second half, however, somewhat limited. So whenever 3-year subscriptions were subscribed back that time. So second half this year, there will be these conversions -- these renewals and then also the overall license base is growing. And I mean, that will lay the foundation gradually increase on the renewals as well.

Okay. Then on your website, you also offer monthly subscription. Is the monthly product currently relevant in a big picture?

No.

All right. Then continuing a bit on the cash flow, you made a net profit over EUR 30 million, but the operating cash flow was a bit negative. In addition to the working capital we talked here, what are the key items impacting there?

Well, the key -- one key item is definitely the bank loan that we repaid in Q4 that was taken for froglogic acquisition. And that we repaid that in October time frame.

All right. Then final one for me. China is about to be reopened. Will that be a significant tailwind for you?

Well, we have a positive trend in our forecast for China in a cautious way, because it's China, they can move other direction as well. So we do expect the China opening, so it's within our guidance now. But the -- we also -- we can take some headwind from China opening without changing our guidance, so to give you that sort of an idea. But yes, definitely now it looks that it's moving into more positive direction. And it has 2 effects. Obviously, we can make more business in China. And -- but it also will help on the global -- the global supply chain issues because China closure has definitely affected on many of these global supply issues. And so we think that the -- those are kind of moving into past and business is getting more into normal. So we do expect that's kind of in our guidance now. So we expect modest growth in China. It's good to realize that the -- I think that the 30% of the automotive market is in China. So it's the biggest single market for many automotive manufacturers. And it's also a very active market for electric cars. I think many of us are going to be driving a Chinese car in the years to come. But the -- so in that sense, it's the -- it's an important and growing market. We do have a great presence over there, and I think that the business is going to be more lucrative from China. So in that sense, things are getting normal. I think that the biggest unknown for us is that the -- how is the work going to develop in Europe? Is that going to escalate or what kind of changes there are going to happen and how high the interest rates are going to go and how much the consumer spending is going to be squeezed, because obviously, it is going to get squeezed, right? But how much, how high the interest rates are going and definitely, we've anticipated that they're going to go higher, both in United States and over here in Europe, but that's kind of a uncertainty. So I would say that the biggest uncertainty for us is that if things really go south, right, the consumer spending is really going to tank and then the runtime revenue growth is not going to be even close what we're anticipating. That's -- that could be a risk we see. But we don't feel like that. We actually -- we feel pretty good. We're pretty upbeat for this year. I don't know if it shows, but I'm relatively happy.

Thank you. I think that was all the time we have. So any final remarks, Juha.

Well, thank you for coming. Like I said, easy numbers to remember 20%, 30% for both, we feel pretty confident that the start of the year looks good. If things remain pretty much the same in the environment, we do see a great growth ahead of us. And if I look at the market, it's still on Qt and our QA tools, they are still both in the early phases, and we see a lot more software being developed and being tested as we go forward. So if I look into years to come, I see Qt as a great company that's going to be growing very fast and making great profits along the way. Thank you very much.

Thank you.