Qt Group Oyj (QTCOM) Earnings Call Transcript & Summary

Hello, everybody, and welcome to Qt Group's Q2 2024 Results Presentation. My name is Herte Nervenen and I'm here today with our CEO, Juha Varelius; and our CFO, Jouni Lintunen, who will be sharing the results. After the results presentation, we will have time for questions first starting from the room and if time permits, then from the conference line. Without further ado, please, Juha, the stage is yours.

Thank you. Good morning, everyone, and welcome. Pretty much the same format as usual. We'll have the highlights, then financials and then I'll talk about the guidance outlook and then there is plenty of time for questions and answers. So business highlights. Our net sales grew 23% so EUR 53 million, growth of 22% on comparable currencies and EBITA margin at 35%. So scalability works very well. We're very happy on these results and they were better than Q1. Of course like I've said many, many times before, the quarters are not equal and there are changes, but we do see a positive trend going forward and this was pretty much as what we were expecting. So we were pretty close what we were expecting ourselves. If we look on the different revenue streams, our license sales was very good and we're very happy about that. In general if we look, U.S.A. is doing good and APAC is doing good and, how would I say; more frictional, more sluggish it is in Europe, which is probably no surprise to anyone. If we look on industries, well, we all know that automotive is not doing as well as the previous year. And there comes into play that we do have 70 different industries and we're not affected on 1 particular industry. But of course when on our major segments there are slowness, we see that ourselves as well. What I'm really happy about is the fact that our QA business has been progressing well. I'm also happy that the license sales is progressing well. That on the other hand has always been the case. Even in COVID when basically everything stopped, we were able -- the license sales were still going forward. It was the runtime and consulting that was slowing down at that point. And that's what we see also now that the license sales, even though there is a bit of slowness in the market globally, the license sales is doing well, which actually makes us -- we're pretty confident about the future that at some point the global economy starts growing again and Europe starts growing again. So this market environment will get better eventually. But all in all, we're very happy about the Q2 and it went pretty much as we were thinking. If I look large deals, the large deals are actually something that they do affect on our quarters. And we know that they are coming because on a large deal when you negotiate a lot and there are lawyers involved and whatnot, they usually don't fall apart. Customers have decided that they're going to go on with the projects and they're going to go with their plans, but the timing on what quarter they're going to hit, that always varies a bit and that's where we do get a bit of a fluctuation. But if I look large deals monetary-wise last year and this first half this year, we've done roughly the same. So on a quarterly basis, they do fluctuate; but this first half if I look, we're pretty much on the same ballpark that we were on the previous year. I'll talk more about the future outlook on a later segment. But of course we think that this level of activity will continue and even increase going forward into the latter part of the year. We had 837 employees, 31 increased and continue to focus on investing in sales and other key strategic areas. Well, that's been our message all along. I mean we do have a plan like for 3 years and 5 years and the 3-year plan we are basically executing all the time like we've been thinking of. So we don't change that plan very easily. And of course if we look now at where do we have more focus on investments is obviously on the quality assurance or on the testing area. There we are investing on R&D, we're investing on our sales and marketing product basically in all functions. That's kind of self-evident because we acquired relatively small companies that we want to build big companies. And so therefore, that's where the majority of the investments goes as of today. But of course also on Qt and keeping Qt product itself competitive because the cornerstone of our success is the fact that Qt is one of the best products in the market as we speak and we're going to continue keeping it like that. So Jouni's going to go through the financials a bit more, I talk more about the future and then we can have questions.

All right. Thank you, Juha, and welcome from my behalf as well to the Qt Q2 presentation. I will continue a little bit in more detail what you have started from. So in Q2, our net sales grew by 22.7%. There was only limited impact from FX, EUR 0.1 million this time. We've seen U.S.-euro fluctuation being kind of more limited during past 3, 4, 5 quarters than it used to be some years back. So the comparable currencies growth was 22.3%. The growth was driven by the license sales and consulting and equally strong from QA side, testing side and Qt license side. We are seeing still year-on-year decline in maintenance revenues. However, sequentially it's already going up slightly and that will start going up then more according to the revenue development of license sales and that is the outcome of the subscription license model that we have implemented. And as we saw in Q2, there was a large deal and we keep on seeing this fluctuation from quarter-to-quarter, going forward as well. It's about when we get the license sales booked and when the distribution license sales come in. We are at 18% growth rate year-on-year after first half year so slightly behind the target of minimum 20%. However, we see that we have a good pipeline to continue from here. We have increased our head count by roughly 30 in second quarter and year-on-year during past 12 months, we have 108 new employees or 15% increase in head count, which is in line with the personnel expense development as well. We are seeing again a slight decline in materials and services which we use for the consulting projects. And this is the way we balance our load to our customer projects. We do more in-house and then use less external partners. No changes in depreciation primarily. And other operating expenses, it's been flat as well for 2, 3 quarters as well and we are now in kind of a good level of investments into strategic initiatives. And also we have done some kind of in-sourcing, doing something more in-house for example some R&D effort and then as well what comes to HR. So it gives us room then to spend the consulting or services to something else. In Q2, our EBITA was EUR 18.5 million or 34.7%, up by 6 points and for the first half year, it's 30% EBITA margin, up by 5.7 points. Our intangibles amortization, the depreciation from the acquisitions, it's EUR 2 million a quarter, no change in that. And this leads us to EBIT of EUR 16.5 million, up by EUR 6 million then from previous year. EBIT margin is 31% and for the first half year we see EBIT of 25.5% or 26%. Now when the FX fluctuation is limited, we also see very limited impact from the financial items. And then also the income taxes accrued is negative EUR 3.2 million, which is 19%, 20% effective tax rate. Net profit for the period is EUR 13.3 million and for the first half year EUR 21 million even. This leads us to EPS of EUR 0.53 in Q2 and EUR 0.83 for the first half year. Some words of the balance sheet then. Well, first of all, the operating cash flow, as stated earlier as well, has been pretty good in the first half year. We have plenty of receivables always at the end of a quarter and specifically at the end of half year. So operative cash flow is EUR 28 million. Our ending cash is up by EUR 6 million from end last year despite the fact that we had repaid the loan that we had taken for the Axivion. There's slight increase in other receivables coming from withholding tax receivables and VAT receivables. All in all, contract assets are going down by EUR 2.4 million and this was specifically in the noncurrent part. In the liabilities side, there's limited movement. The other short-term receivables is up because of the deferred revenue and income tax liabilities and also the interest-bearing liabilities are down by EUR 16 million from end last year due to the repayment of the loan. That's the main topics from the balance sheet. And now I hand it back to Juha to go through the outlook and guidance for '24.

Thank you. So like I said, after first half, we're pretty much where we're planning to be. So that gives us of course confident that we are pretty much on a path that we were thinking that we would be. If I look now forward, you all know that Q3 is going to be slower, obviously the summer vacations and whatnot and then Q4 is going to be humongous compared to the other quarters. Again on this second quarter happened what always happens to us that the first 3 months are a bit slow and then the last deals were actually signed and we got the purchase orders very late on the last day. So even on this quarter, the deal making is very towards the quarter-end and that just seems to be, I don't know why, but that seems to be the case. And so I think we're going to make a large part of this year's sales actually on December and 2 or 3 last weeks of December. If I look at the market overall, if I look that what our customers are doing. Our customers are inventing and planning to invent, design new products and they are planning to take these new products to the market. So there is no change in that. And our customers know that if they don't renew their offerings, sooner or later they will be out of the business. And as long as this continues that there are going to be graphical user interfaces and products and they're going to be bigger and brighter and whatnot, I don't see no reason why -- we do have a good market to be in and that continues to be there. That continues to be even more so. There are always fluctuations. So now when we talk about Europe, APAC and United States; sometimes United States is ahead and then they are behind. So those positions tend to change a bit. But overall if I look at the whole market, I have no doubts that --wouldn't there be a growing market in all these regions for us. So they do fluctuate, but the overall trend in our market is still heavily growing. On quality assurance or testing, I like to talk testing because quality assurance can mean so many things depending on where you talk about it. When we talk about testing of software, first of all, I see a lot of software coming. There are more software developed because each and every product needs to have software in them because software actually differentiates the product and better software, the better product you have. So there is no doubt that there is going to be more software. Then there is AI coming. There are many different means that there's going to be even more software coming into this market. And I don't want to drop any names, but just few weeks back we saw that if there is a small bug on the software, it can have a big effect. So I think that there is need for more testing in the market. And we have great tools that you can use testing software even when it's being coded and we have great tools to test the software when the product is ready that it actually works. And you can use our tools also to test when you do changes on your software. So the need to have a bug-free software, it's of course very, very critical when we talk about safety critical things like brake systems in cars or aviation or such. But even on nonsafety critical software, it's very crucial that it works as expected because the financial damages can be huge compared what would happen if there are no bugs in. So I see that the software testing market is going to be -- in our case with the product portfolio we have now, the potential market is even bigger than Qt market. And I also like our testing business because our current products not only they fit well into what people do with Qt and they can use testing on their Qt software, but it opens up our testing tools can be used for testing on other languages as well. So it broadens our addressable market. And so far, the success on that sense has been very good. Of course the QA business is still small relative to our whole business. That's started, but like I said before, in the years to come I see that it's like Qt. On a business-wise, it's like Qt 2.0, right? So it's going to be over EUR 100 million business no doubt for us. So challenges in the market. Well, of course we all know our -- I guess the biggest fluctuation is that when the end user market is not as strong as usual, then we see it on runtimes. Run times are growing, but not at the fast rate and that's basically where I think that this economical environment will slow the most. The other is consulting. Usually our customers when they want to save money, they outsource less and they do more in-house. And then this global economic situation, we don't have to go into detail into that. But there are growing tensions globally in China versus U.S.A. and these type of things where that's going to end up and war in Ukraine. So of course these are all affecting the fact that how consumers are spending their money. People were very concerned when the interest rates were going up and now they're very happy when the interest rates are coming down. Like I never see that. I understand that. That's okay. But I also see that when interest rates go up, the economy is kind of doing great and when they come down, the economy is slowing down. So it's kind of a 2-way street and now they're coming down, which means that the economy is slowing down. In short in U.S., the economy has been surprisingly strong and I actually think that it will continue like that. Somehow in America they always find a way to execute and to not go into downturn and if they do, not very long. In Europe, I think the recovery is going to take longer obviously. And I'm not good to make estimates when it's going to turn, but definitely it's not going to happen very quickly at least. And APAC is basically doing very well. So for our whole product portfolio, I actually see a growing market. I see that we are very well positioned. And if I look a few years ahead, I see no reason why we wouldn't be able to grow in that market. We do get very good feedback on all of our products. We do get very good feedback from our users and that goes also into testing environment. I see the software testing growing. For the foreseeable future, I see that market to grow as well very quickly. On acquisition front, we have nothing to tell, but of course that strategy hasn't changed. We do have our own global sales so we do have a direct sales ourselves. We also do have Fortune 500 companies, many of them are our customers. So we do have a very impressive customer base and that's basically the reason that when we acquired the QA testing business to us and we put it into our global distribution, we've been able to grow the business so fast. And that is our strategy going forward that we are looking for new promising products that fit into the software development flow and we're looking to acquire that kind of companies. Didn't do anything on the second quarter. I don't know when it's going to happen, but it's still very active work that we do in that field. So with that, I have 1 more slide, which is pretty much the same all the time. So 20%, 30% year-on-year at comparable exchange rates are our operating profit 25% to 35%. I would say that I know that our expectations are high, but pretty impressive figures. I mean grow so much, so profitable. That doesn't happen very often. So a unique company. Thank you very much.

It's Matti Riikonen, Carnegie. Couple of questions. Just to kind of frame out the large significant U.S. license deal. What was the size of it? Was it developer or distribution license? I'm expecting developer license. And then from which customer sector was this customer coming from?

Okay. Well, it's developer licenses mainly and the customer segment, I'm trying to figure out how to -- they do big vehicles, but not cars. No, it's not defense. That's by the way a good question. I didn't mention on my presentation there that when we think our different segments, obviously the automotive has been a bit slower this year. Defense and medical are doing very well, defense particularly. And on consumer electronics on subsegments, we see some slowness on somewhere, but we have on general not so much slowness over there. But so defense and medical for example are doing very well, which kind of makes sense if we think what's happening in the world. The size, like I said, when we talk about large deal, we talk about millions obviously. And if I look on the first half of the deals, the millions are about the same than a year before. So it's multiple millions, but not tens.

Is it more than EUR 5 million?

Well, I think that our big deals are usually EUR 5 million plus a little million here or there and this is on that category.

So the one that you talked about is over EUR 5 million in Q2.

Well, it's in that ballpark. And if we look the -- so the large deals here before, they are about the same size.

All right. Then could you describe the distribution license business and the volumes a bit? You mentioned that the developer license sales were good so growth was nice there. But of course you didn't say anything about distribution licenses yet. So as we have seen your end customer sectors like automotive seeing a decline in volumes this year, how are you actually doing in distribution licenses and how does that compare against your thoughts when entering this year and expectations for distribution license business?

Well, there is what I said before. Last year we had a couple of customers that they got their development ready and they launched very big programs. So last year the distribution license revenue was growing very fast as you remember. And so I was saying this year we report the distribution license revenue on a yearly basis because it does fluctuate quite a bit quarter-on-quarter as well. So I was saying last year that don't expect that high growth this year because last year was exceptionally good. So don't project that that's going to continue. Is it growing? Yes. Are we going to -- on a yearly basis, are we going to be close what we've been expecting? Yes. So I see some slowness there, but our distribution revenue actually comes on very many various sources. So the automotive is not that dominant in that sequence and so I see slowness over there. So we are maybe slightly below what we were thinking so far if I look at the whole year and if I look the whole year and I know the programs what's going on, I think we're going to be pretty much on our plan. So we have to remember that in the automotive for example, I will say we get EUR 1 or $1 per screen in a car. So of course even if they slow down, you can calculate that they have to slow down substantially before they have a substantial effect. What I'm also very happy about that last year we said that -- when was it? I think it was last year, we said that our 3-year subscriptions are coming into renewal, right. And we said that, well, that's potentially a risk because it's the first time and we don't know how they're going to renew. Well, that risk never obviously came into realization. So people have been renewing very well and pretty much as we planned.

Right. Just a clarification that when we talk about distribution licenses still and you mentioned there is some slowness in the customer sectors, do you think that there is a kind of increased risk for the second half that the world would go a bit softer even still and then it would be kind of below your internal initial expectations or do you think that this is pretty much as normal and it's still within the normal limits?

Matti, that's a really difficult question.

I know. That's why I'm asking you.

So let me put it this way. On our plan on consulting is the fact that -- I get your point, but I kind of paint a bigger picture. So on consulting, our aim is to help our customers and our aim is to help specifically our new customers to be successful in the beginning so that when they start using Qt, they're getting a good start. So therefore and if it's just selling more workforce, then we recommend using some of our partners. So that's our consulting strategy. So in that sense, we have very, very skillful engineers in our consulting, but we're not -- on a business wise, we see it as supporting our product sales. On developer license sales, we do see that we do get new customers that maybe have been using some other tools or maybe have been using their own internal tools. We do get those. We do get new customers on testing side where they realize that how good our testing tools are specifically testing Qt code, but also other languages. We do get customers that see not only static code analysis, but the architecture analysis is very, very important when you have a bigger project and then you need the certifier safety critical systems. We do have tools for that and that part is that where we can affect. I mean of course we can say to ourselves that work harder, work longer, be more efficient, right. There we can make a difference, let's say, on the second half, right. On runtime revenue, it is something that they've been sold like a year or 2 years ago, even 3 years ago and now the products are rolling. So there is less than we can affect. No matter how hard we work, we can affect less on the runtime revenue. Then we come on the last part of our revenue streams, which is the renewals. And of course we can try to keep our customers happy when they are using Qt. We improve our product all the time. We make everything possible that it makes every sense for them to renew. Well, as you know, many of the projects that our customers start, they never end like 1 year or 3 years. They continue and then they have new products starting. So our churn rate is very low, but that is something that we can work harder and be better and secure that the renewals stay at the high level where they are, right. But from there, it's very hard to make extra revenue. So in your scenario that the world falls apart and the runtime revenue goes very drastically down, the only revenue bit that we can counteract is actually the developer license sales, right? Well, luckily, the developer license sales is a big chunk of our business, not on testing and on Qt. But of course if everything would stop, then that would be the part of the revenue that we would be getting a hit on a short term and it would be very hard for us to recover from that on a short term. Well, do I think that would happen? Well, highly unlikely because if you think that we are selling to industry automation, we're selling -- our products are being used when factories and robots are being built or all kinds of industrial machines are being built. We are in medical, in surgery, in hospital machines and these type of things. And so we do have a lot of stuff not only consumer or cars. We are on 3 different continents. Let's remember that basically suffering now is the Western automotive manufacturers. The Chinese are doing pretty well. We're there too. So all-in-all, of course if everything stops. Do I see that everything will stop on all our 3 regions? No, I don't envision that. We do have our own challenges in Europe, some are being built by ourselves and some are just the environmental changes. Of course Europe was getting very cheap energy from Russia and they were very competitive. Now the energy prices are substantially higher and we are not that competitive. How long that does take to recover? Well, a bit. So do I envision risks going into H2? Yes, of course. And is this -- but I would say that this is like couple years ago the business was like it was easier. Now everything takes a bit longer and lot more harder work. So it's like pushing all the time. That's what it is. But do I see that it's hopeless? Not at all.

All right, good. Finally, on recruitment and head count. You had some 15% increase in head count. Your growth rate is a bit higher. Do you think that the head count increase should accelerate in the second half in line with your likely acceleration of top line growth or do you think that the current pace of getting more people is...?

The current is more like it. yes. The current, I don't expect. I mean yes, we hire more into testing business now, but it's relatively so much smaller. But there is a limit that how much they can hire in that business segment at the moment. So more or less like this now. On personnel, I must say that our churn rate of people leaving, that's relatively low number for an IT company. So people like being at Qt, very great place.

Waltteri Rossi from Danske Bank. Still on the large deal in the U.S.. Did it include quality assurance licenses and also was it a completely new customer?

Sorry? Did it include...

Quality assurance?

Okay. Yes, it did and it's not a new customer.

Okay. On growth, was consulting growing in Q2?

We don't report that separately, but my expectation for consulting is that it would be relatively flat on a yearly level. We're not kind of seeking growth in there and that's where we see that customers are trying to do things by themselves. So I think that for our partners that are selling consulting lots of volumes, they probably see slowdown in their business because there is not so much demand. We kind of are doing, with the limited number of consultants we have, the really hard cases and trying to help our customers in the beginning and whatnot. But we're not seeking growth in that. So relatively share of the total in our consulting is going down all the time.

All right. Then on the quality assurance growth, has that growth rate been similar than it has been since the businesses were acquired? And is the growth still coming more from the existing Qt customers or how much is going outside of the ecosystem?

Well, on a business like that and in the beginning the fluctuation quarter-on-quarter. So I you're asking second quarter question. If I ask that what it's been on the first half and what do I envision it to be? Well, first of all, I've said that we wouldn't acquire anything that would dilute our growth in general. When we look at the QA business and it's small numbers so if we talk about percentages, then it's growing faster. I'm expecting it to grow faster than Qt in a whole year. I see and I expect that, but it does fluctuate quarter-on-quarter obviously. And what was the second part of your question?

Like do the sales come -- how much does sales come from the existing customer base and from outside?

So Squish is selling very well to existing customers. Axivion is actually selling more outside of the Qt core system. And on general terms, I've said that we've set internal target that 30% of the revenue would come outside of the Qt ecosystem and I think that it's very realistic. I don't know exactly how we exactly on that 30%, but I know that we're close and I expect that to continue. So 1/3 of the business outside of the Qt ecosystem. Maybe we increase that percentage later on, but now that's where it is.

Fair enough. Then on the maintenance more of technicality, but you said that the decline there would end this year and then it would start growing in line with the developer license sales.

Yes, but slowly.

Like when does that turn?

Well, we did see now sequential growth on the maintenance and we expect that to kind of go on. Year-on-year growth probably will show in P&L like sometime next year. There's very limited number of old maintenance license customers -- maintenance customers anymore.

Okay. So do I understand correctly that next year the maintenance row will show some.

Yes, it should at the end of the day start developing pretty much same ratio as our developer license revenue growth.

But not like in Q1 already.

It's kind of difficult to estimate that accurately at this point.

Okay. Still few questions for you, Jouni. On the margin side and cost side, what line items, if you can tell in detail, in other operating expenses decreased in relative terms in this quarter?

Well, we did see a decrease for example in HR costs, which I think I said that we have been doing some insourcing, doing more in-house. And then also third-party services as well specifically in R&D. We have again recruited quite a few R&D employees now during past 12 months' time and doing again little more in-house whereas then we do put a lot of effort into strategic initiatives like marketing efforts into QA and also recruiting new heads specifically to QA.

All right. So investments in marketing have not decreased?

They have not decreased, definitely not.

Okay. Well, still 1 question. Can you give a rough estimate how much does the consulting currently improve the margins and does it show mainly in the higher gross margin or does it also show in OpEx?

I'm sorry, consulting.

Yes, consulting because it has a lower weight now.

Well, I guess all in all in big picture, the kind of relative share of consulting sales is so limited. I mean whether it's flat or slight growth, it does not that much show up in the overall EBIT margin.

Jaakko Tyrvainen from SEB. Your H1 growth is now 18% and you're still keeping the upper end of the guidance range at 30%. What are the key assumptions behind the higher end of the guidance range? Do you have for example some larger deals in sight or how much it's based on the expected 3-year license renewables?

Well, I think that what it seems that our customers that whatever license they've purchased, they renew that at the same rate and we don't intentionally want to change that either way. So that's not good. So we're not looking revenue growth by changing the licensing terms, right. So that's what we're looking for. Overall, I think that it's basically 3 factors. If the economy would improve a bit and then it's the larger deals, bigger deals, that's basically where it could come from. And these bigger deals, they usually take quite a while to finalize and where do they finalize? On what particular quarter they do finalize? That's very difficult for us to estimate. So that's basically it. If I look, the year-end is particularly difficult because then we calculate the whole year and from our consulting, lots of deals towards the year-end. Are people going to -- we have every year that some of our customers sign their deals at the very end of the year and then the ones that don't, they may sign them on 2nd of January. So it has happened that everything is ready and we're waiting for the purchase order and it never comes, but then it comes on the 2nd January. So our customer wants to have that deal on the following year. That's basically the deviation that what we see and that fluctuates, I think that we are -- so that's basically. On runtime revenues, there is some fluctuation so that can affect a little.

All right. Continuing on the license renewals just to confirm. So in Q2 you saw the 3-year licenses being renewed as 3-year licenses.

That's in general terms, yes. I think that is something to do that if you have a 3-year license, you know that that's coming to a renewal, you already budget it. You put it in your budget. Because the projects we have they run a long time. So if you look our customers that we have, we've had some customers 10 plus years and once something is done, then they continue on the next one and they use Qt very extensively. So in that sense, they're going to -- they will keep on renewing. We don't see any change on that. So then the question is do they want to renew 3 or 1? But in general terms, that seems to be the case and in general terms, the customers using our services, the customer relationships tend to be very long.

Okay. And still continuing on the same topic. From your self perspective in your new sales, are you preferring nowadays more 1-year licenses over 3-year licenses or is it just up to client to decide?

Well, eventually it's up to client to decide. Of course in a perfect world having only 1-year licenses and then renewing it would make the business. Maybe it would make the business prospecting easier. But we let customer to decide because there may be various reasons behind why a customer wants a longer license. Maybe they have more in a budget, maybe they want to secure that I get this tool and nobody's going to take it away from me eternally I mean.

And have you seen any shift in the maturity mix during the first half? And perhaps in Q2, was this large 1 deal you mentioned, was it longer than 1-year license?

It's longer than 1-year license. These larger deals are usually longer and somehow they are usually -- from customer perspective, they are strategic so customer is using Qt very extensively. It's like a platform and they want to secure a longer period of time and they see that they're going to be using it for 10 plus years. So we don't sell 10 plus year licenses just to make sure. But I mean we do see that customers are thinking that this is going to be here 10 years or 20 years so they see that it's going to be there a very long time and then for various strategic reasons, they like to do longer deals.

Antti Luiro from Inderes. I could ask about the quality assurance target markets beyond the kind of core Qt customers in embedded systems. What kind of use cases are you focusing on? Is there something around cloud infrastructure, web development? What kind of quality assurance areas are you servicing?

Well, actually it goes very well on safety critical things and where you need certifications on safety critical things. That's 1 clear focus no matter what you've been using. And then Squish is for user interface, automatic user interface testing. So Windows [indiscernible] users, the obvious suspects. And on Qt, obviously we do have our commercial customers that we target, but then we have the whole open source community because the open source community, they use open source to do Qt software, but yet it needs to be tested.

And then on the new product pipeline and perhaps your portfolio expansion to a new area altogether, I guess QA of course you opened -- I guess it's fair to say you opened it with M&A, but also you've been adding on top of that with your own R&D new products in that area. So where are your organic product investments going towards? And do you see it likely that you would open up a whole new product area with organic efforts or is that more likely to happen via M&A?

Well, these safety critical issues are coming more and more relevant in many industries where we are. So we need to take that into account. Then always specifically in Europe, there is new regulation coming into play we take into consideration. So I would say that it's these type of things that we -- if I look at Qt and I look the industries we're having, they have a bit different needs and over there our Qt development is doing work to fulfill those needs basically. So in a car for example, you do have these brake systems and you do have some systems in a car that are very safety critical and they need to be certified and you need to be able to have those certifications and so on and so forth. Same thing on medical, lots of safety critical issues over there you need to take into considerations. Those are some things that we need to take into account and that's where we do development. And then in general, adding more performance on Qt per se to be able to go on a lower scale, well, that's MCU because product portfolios are expanding lower and lower and lower. So we need to be able to be also on the low end not only on a high end. So those are kind of our typical development issues that we do ourselves. Then if we look a totally new opening like QA, I would say that's an acquisition. So the next acquisition, it's going to be a new opening obviously. I mean it might be a new opening in a QA area that fit in a new segment in QA. That's of course possible, but something like that. Because if you think that you try to develop a new product from scratch, it takes a longer time plus we don't have the competence for it. So we're very happy and very proud of our QA personnel that have joined Qt because I mean they're crucial for the success of the business. We as Qt, we didn't have that expertise on testing. We acquired that expertise and now we're building on top of that. So same token. What we're not doing, we're not buying revenue. So I'm not looking for that we would buy a company that makes EUR 30 million or EUR 50 million revenue just for the sake of it. So our acquisition probably will be that it makes EUR 10 million plus/minus revenue, but it's a great product that we can expand.

And a short one before I give it over to Felix. How significant is Japan in terms of your revenue share?

Well, we don't disclose that, but Japan is one of the biggest embedded markets in the world. It's very important. I've been there many times and going again and I hate that we can't go over Russia. It's like a 12-hour flight.

Felix Henriksson, Nordea. A few follow ups on my side. Firstly, on the second half growth acceleration you mentioned, you talked about the pipeline and improved activity. But could you just clarify is this improved activity more on the developer license side or distribution license side?

Well, both. Well, I expect the developer license sales obviously to be on a higher level, but also the distribution license growth will accelerate towards the end of the year.

Then a follow-up on my question from the last earnings call. I asked about the lease prices and you mentioned that you haven't yet implemented any increases in those, but there could be some potential especially on the distribution license side. Can we get a short update on that front?

Well, yes, it's in the works. And so usually when we do price increases, we tell our customers round about this time so that they can have it on their budgets. So you want to have the price increases communicated to customers in Q3 basically so that they can budget accordingly going forward and then the effect comes later.

And is it still a fair assumption to say that distribution license side is where broadly the potential is?

Well, I don't know where the potential is. That remains to be seen. But I see that there is -- it's a very difficult line item to increase the revenue. But if I think that how we've been increasing the prices, how things are moving forward; yes, that's where I think that we have more room to maneuver, remains to be seen. But yes, of course around this time of the year, I mean it's very evident. Basically I know it's not a good reasoning to say that our costs have increased and that therefore we're increasing our prices. But that again is the fact of life, right. Salaries are going up and everything is, our costs are going up because of the increases because of the inflation. So obviously we do increase our prices accordingly. So don't expect to see 10% hikes and that happens usually this time of the year. And I do see that eventually the -- obviously it's the runtime component as well that needs to be increased.

Fair enough. Then finally, I think you had EUR 40 million of cash at the end of Q2 and cash generation has been extremely healthy recently. At the same time, we still haven't seen M&A. So I just wanted to revisit your thinking on whether or not there would be other ways to deploy that cash in the future in the way of some organic investment initiative or shareholder remuneration.

Well, the dividends and such, that's the shareholders decision not mine. Let me put it this way. No matter how much cash we have, we buy a good product company when it comes. So we're not going to go and buy something just because we have cash and we're not going to use the cash hastily just because we are afraid of that otherwise it might be used into dividends, right. So that's for sure. For dividends, let me put it. So far of course it's the Board of Directors and then shareholders. Board of Directors propose in shareholder meeting, then decides. But our strategy, which is currently, is that we're going to invest for future growth and we can see this company growing for not 1 or 2 years, 5 and 10 years going forward. So clearly we're looking to use the money for investments. But if not, then it's a good question what we're going to be doing next and that's the Board of Directors that are going to be discussing that. We're not -- even the same thing on our -- we hire the people we think we need for the growth. We do the marketing we think we need to do for the growth and nothing more, right. And so that's how we see things. But I mean obviously the company is growing and making 35% EBITA. It's kind of a happy problem. But the cash keeps on piling up and evidently something's going to happen to it.

Matti Riikonen from Carnegie. Short question to Jouni about contract assets. You said that they were down, but compared to what period I think they were down? They were up year-over-year, but of course compared to year-end.

Exactly. I was referring to year-end balance meaning that we have been releasing the assets during the first half year compared to last year-end.

Right. And it was so that the long term contract assets they were the part that declined.

Yes, exactly. And the logic is in a way that long term turns into short term and then ends up to receivables and cash.

Thank you very much for coming over here. As closing remarks, we had a very good Q2. We're happy about it. If we look to the latter part of the year and if we look business even a bit longer, we do see a market growing, great demand for our product. So we do have great products. Both Qt and our testing environment are going very well going forward. So we do see that we are relatively happy where we are and we continue hard work so that we can have a good year. Thank you.

Thank you.