Hello and welcome to Qt Group's Q4 and full year 2023 results presentation. I'm Hertta Närvänen , a communications lead at Qt Group. 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. Without any further ado, Juha, please go ahead.
Thank you. Good afternoon, everyone. My name is Juha Varelius. I'm the CEO of Qt Group, and we have a pretty much same agenda as usual. Q4 2023 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. Business highlights. Our net sales grew 18.3% at comparable currencies, and we reached EUR 59.3 million quarterly net sales. Q4 was good, but we didn't quite get where we were looking for, excuse me, where we were looking for. It was a moderately good year, but we're not entirely happy for it. Was there something exceptional happening on Q4? Well, it was a good quarter, but we didn't quite get where we were hoping to. Our license sale is developing.
If we look at the number of licenses, they are actually developing pretty much as we were predicting. So in that sense, 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 the whole year, and it was also soft on Q4. If I look at our runtime 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, I can say already on the 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 proof that this is a very scalable, a very profitable business. 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 very profitable going on in the future as well. The profitability is going according to plan. Of course, we see the costs and the revenue, and we manage both. Going forward again for the future outlook, 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 total 775 on December 31st, and we will continue our growth investments. They are hiring people, doing R&D and such. We did have a Qt World Summit, which I want to highlight over there.
There were again over 1,300 participants, mostly developers, tech, product management, attendees from 38 different countries. We had customers like Sky, Koenigsegg , 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 great participations in these. There is a lot of excitement and energy in 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. 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. Net sales grew at 18.5% on comparable currencies. Of course, if I could change, I would have rather had a bit more revenue growth than 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, which is actually very difficult to achieve. We are happy with those numbers, even though we were behind targets.
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 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 QA business and quality assurance business. We're very happy on our both acquisitions on Axivion and froglogic. So froglogic had the Squish and Coco. Axivion is Axivion product, and we're very happy how they developed last year, and that looks really promising going forward.
Not only do we have new products to our portfolio for our sales force to sell 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 been developed by Qt. And so therefore, there is an even bigger market potential than Qt only. We see that important going forward. We haven't given any official numbers, but my feeling is that our QA business is like Qt in 2015. We expect that to grow substantially in the future. We look at all our products that they need to be independently competitive. 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 two 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 three years ahead, and we're executing that plan, and we're not making any changes on that. The headcount added during the year was 87. Now I hand over to Jouni, and he can walk through the financials.
Thank you, Juha. Welcome from my behalf as well to the Qt Group earnings call. My name is Jouni Lintunen, going through the financials. Let's start from the, oops, sorry, from the repetition on net sales. As Juha said, we saw an 18.3% increase in net sales in Q4 in comparable currencies. Headwind from the exchange rate was EUR 1 million, EUR 1.2 million, and namely coming from USD sales, which devalued. 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%. For the full year, we reported 16.4% net sales growth, and in comparable currencies, 18.5%.
Similar kind of 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 parts of the lifecycle. 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 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 softness in revenues and the spending as well, adjusted by that. Personal 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.
That's roughly the organic pace we have been seeing 2-3 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's 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 2023 instead of 4 or 5 months in 2022.
No major changes in operating expenses over there. EBITDA for 2023 is 55.4%, 30.6% up from 27.2%. 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 for most part unrealized exchange rate impacts in the balance sheet. Profit before taxes is 44.8%, and in 2023, our effective tax rate was 21%, which is in line with our targets and plans also going forward. Net profit for 2023 is EUR 35.5 million or 19.6%, and EPS EUR 1.40. Our cash flow was EUR 40 million last year. It's driven by the EBITDA development. On the asset side, well, cash was EUR 34 million. We see increase in account receivable.
We see increase, somewhat increase also 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+ million increase in deferred revenue also at the end of the year, which I mean is on the other side. In the equity liabilities side, it's for most parts movement from long-term part to short-term what comes to loan and the earnout balances. Yeah, I mean that's it for the balance sheet side. Now I hand over back to Juha, who will talk through the outlook and the guidance for 2024.
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.
Okay. Not a valid menu option. Well, I continue anyway. Is this still up in the air? Yeah, okay, yeah. Sorry for that. I'll continue. 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, the addressable market is even bigger. The software is coming increasingly complex and, well, in everyday products and sort of also on safety-critical products. So you can imagine that if you're driving a car, there is software handling your brakes. You do want those brakes to work in every environment and so on and so forth.
So we see that for both of our product, these bigger products, of course, we have Qt Insights, 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 wars in Europe, and we have uncertainty here and there. Although I think that this is a personal view, but my feeling is that we're kind of approaching the bottom, and this year is actually the latter part of this year will be better than it's been so far. But of course, we do have the global economic situation that may affect 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 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%-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, three-year renewals coming this year, more so on maybe a bit more on the second half. But we do have an experience of what's been happening over there, and it seems that what people have had, what they've originally purchased, that's what they budget to continue. Kind of makes sense.
And so we see that if people purchase their one-year license, they renew one year. If they purchase three-year, they renew three-year. 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 with how it looks now that it's going to go according to a plan. If we look at the new sales, the mix what we have, well, we've kind of 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.
The reason for that is that last year we had 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 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 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 a cost pressure on many of our customers, and they're 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 lots of layoffs on developers in that sense. So now our customers are looking at how can we create more with less. Same thing, but different driver basically, right? And so that resonates on our... to our sales and our basic promise to our customers is that take 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 bit of the product, the architecture testing is particularly interesting. And also on 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... all the sales is under the 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 such a 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 look at where can we add value in that process to our existing customers. And we're looking at acquisitions. And... but when are those acquisitions going to happen? Don't know. We're not giving them a timeline. 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 this software development software domain, and our goal really is to stay on the 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.
Good afternoon. It's Matti Riikonen, 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, and aviation, and then in industrial automation. So the consumer electronics sounds a bit counterintuitive. Could you explain why that was so good for you? Were there customers starting some new projects, or was it just kind of a ramp-up of your Qt-made devices across the board?
Well, it's both, but obviously some of our customers were launching products in that segment that had been developed earlier on, and that drove the growth over there, basically, yeah.
Fair enough. Then just out of curiosity, what is... how is the security, defense, and aviation industry? How are they 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...
Very few. Well, unfortunately, particularly on that segment, we are very restricted giving out any information, but 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.
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?
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 at just the numbers, depending on what programs come to an end and what product launches happen, the position just looking at the numbers made 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 the text in a 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... yeah, in that sense... we're very excited about the medical as well.
All right. Thank you. So in 2023, 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?
Not in the same scale, no. So distribution licenses will grow, but not in the same scale, yeah.
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, not absolute-wise?
Yeah... yeah. So first of all, just a correction. I don't see that the distribution revenue will decline. The growth rate will decline.
Yeah, that's what I meant.
Yeah, yeah. And... yeah, 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 think that how do I frame it.
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?
Well, number-wise, it's probably fairly steady growth, yeah. So I expect the same type of numbers. Overall, we expect that, like our guidance is for the whole revenue, that we're going to go 20%-30% this year. Obviously, distribution licenses and licenses will drive the 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 into 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%-30%.
All right. Thank you. 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...
Not that much, no.
Not that much.
Not that much, yeah, but it declined, yeah.
Okay.
Yeah, yeah. Millions, but not 10.
But you are not expecting the same kind of headwind from consulting as in this year?
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, 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 at how to grow that. And for subcontracting purposes only, then we have our network partners in our ecosystem, and they deal with that. But for consultancy companies only, last year was a tough year.
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?
Well, so usually what happens is that we have two types 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, and our sales starts talking with them, the customer already knows quite a lot about the product, and the customer has qualified quite a bit that, hey, this is something I need. Or if we approach a 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 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 at Axivion, it's 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... traditional direct sales in that respect. They say 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, where 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 yeah, definitely your quota...
The guys that have been the longest with us, they tend to have the biggest quotas because they have the big customers and large portfolios to sell. That's how it goes. Yeah, 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. Now if I look at where do we add... like I said, most people, it's not only sales, but we bought froglogic and Axivion. They were relatively small companies. We bought them. They had EUR 11 million combined. Revenue was EUR 11.5 million, if I remember correctly. So obviously, their R&D, their marketing, their sales... all the functions are relatively small. If we're looking that we bought two companies with EUR 11 million revenue, and we are looking that a few years ahead, they're going to be EUR 100 million.
Obviously, you know, they are going to grow quite substantially in that respect.
All right. Thank you.
Yep. Thanks.
Hey, 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 you're focused on growth in other areas like QA. 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%-30%.
No, not at all.
All right. So it's still...
They are in that range. Yeah. Oh, yeah. Absolutely. Definitely.
Yeah, yeah. And no fears of that sort of slowing down. Obviously, you've been very successful in that field, so at some point the market is going to...
I actually see that growth very steady. So, you know, if you look at the revenue numbers last year, the changing from three years to one year and all that mixture, that affects on the revenue numbers. But if I look at the number of licenses growth, you know, well, in this business, it's hard to make longer-term predictions. But you know, if I look now a couple of years ahead, you know, if I look now that the, well, maybe a wrong phrase, but you know, if I look now that, don't get me wrong. Of course, I'm looking for your personal business every day and every, you know, 24/7. So rest assured. But if I look that we kind of are okay for the next couple of years continuing like that, yeah. Right?
So I'm kind of thinking that what moves we need to do, that this continues on a third, fourth, and fifth year going forward, yeah. So we do... I don't see any slowing down yet. No, no. Of course, when you say that, you know, at some point the mathematics will come, and it will start slowing. Basically, it just gets so big, and the market... you know, we penetrate the market. So at some point, yeah, that day is going to be there, but not for two or three 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 Qt going. So I do think that Qt is going to be growing very nicely for the coming years.
And then we have this subscription business, which means that people are going to be renewing. So what we also see is that this is not something that people use for a while, and then they throw it away. Instead, we see that... you know, so what are you going to be seeing in the long term? And I'm not talking about this year or next year, but are you 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.
Right. So I guess in other words, the only revenue items diluting your overall growth would right now be consulting and then the maintenance revenue, I guess.
Yeah, yeah, yeah. And that was the case last year, yeah.
Yeah, yeah. 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?
Yeah. Analytics... the feedback from the customers are... 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 a 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 there is quite a lot of ad impressions.
Interesting.
Definitely it is. Where it's going to go, let's see. But yeah, so there is a business.
Yeah, yeah. 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.
Yeah.
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?
Well... you know, if we can turn this traffic in on ad business into substantial revenues, yeah. Insights, yeah. We're going to have some investments over there. Design tooling, definitely 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 quite a lot of... well, there was the announcement of Ducati and whatnot. So we see quite a lot of... it's supporting our Qt sales, but we also see people signing up on MCU. So we're going to continue on MCU investments. If I look into QA, proportionally, it's going to get... if we looked at how big Qt is and how much we invest there and how small QA is, proportionally, there's going to be more investment on QA. But I think on 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.
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 in 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 picking up?
It's very good. So I've set a target... well, you know, in the early days when we got this product, I was worried about that we're going to turn this product business into a 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 I set a limit. Nowadays, it's much smaller, and we are very happy that we created a product company and not a consulting company. If... on QA, I've given a number that I want to see 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 two things now that on these acquisitions.
The first is that I'm saying that they need to be independently so good... 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 it into 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 to 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. We need to make a special emphasis that we also sell outside of the Qt. The target number is 30. So 30% of QA sales needs to go outside of the Qt ecosystem, and that is to direct that we do have marketing activities. We do have sales activities. We go on the QA-only seminars and trade fairs and whatnot. Happy to say that that's about it. Maybe I should have said 40. But so to, you know, the exact number is not important. The important thing is that we also capture that part of the market.
Hi, Jaakko Tyrväinen from SEB.
Hello.
I could continue on the runtime revenue and the communication of a slowing down in 2024. 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 runtime revenue growth in absolute terms, euros, coming down?
The growth rate is going to come down. I'm not saying that the distribution license revenue will come down. I'm just... the growth rate will come down. So if the growth was 50%, I'm trying to help you that don't make a... 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's a guidance that what he's going to put on his Excel. And you asked so many questions that it's hard for me to think how I'm going to answer that. But yeah. So the growth rate is going to slow down, but in absolute terms, it's going to be a bigger number. It's still growing.
Okay. In 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.
Yeah. Yeah. Well, let me think about that. Yeah.
Sure. Thanks. A few words on the short-term visibility. Did you have any major slippage from Q4 to Q1 or perhaps for 2024 overall? And are you expecting to close those in near term? And how is the overall sales pipeline situation in terms of the short-term trading?
Yeah, 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 a deal that that's about to close, there is so much work on our side and specifically on our customer side that it's not a matter of that they would turn away anymore. It's the matter of that... you know, 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 coupled deals, and yeah, they are dealt with. If I look at the pipeline development, it's good. If I look going forward, the pipeline development, you know, a couple of quarters ahead, yeah, it looks good. No worries on there.
It looks that we are... 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 generates pipeline, and then they look at the whole pipeline and all that. So yeah, 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, you know, we... December and the last two 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 with a very good profitability. And that seems to be the tendency.
The renewals. You indicated that there are quite a lot of three-year licenses coming under renewal this year. But if I recall correctly, in Q221, you had this one very large EUR 6 million deal. Very large one. So that deal, do you recall whether it's a three-year deal or was it perhaps a longer deal than a three-year deal?
I don't recall, but I can check. I'm not looking at anything that size at the moment.
Okay. In the past, you have made longer deals than three-year deals?
We do, in some occasions, make also five-year deals. On some occasions in specific markets. Not very, very often. Not in... I would say that very seldom. And it's... the customer has a very good specific reason for a longer term.
Yeah. Then my final one. A few weeks... a month ago, you announced joining the AWS ecosystem. And could you open a bit of the commercial logic behind, and should this have material sales or margin impact in the near term?
On the near term, no. No, I don't. We're 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.
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?
No, I don't think so. No.
Okay. Thanks. That's all from me.
Thank you. [Foreign language]
Hi, it's Matti Riikonen. Can I give 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?
Yes.
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 2026 or even later?
I would expect it to turn around in 2024 even. I mean, we are close to the ratio where we book this 5% of the Qt license revenue into maintenance. So it has gone 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 reported maintenance revenue... it's rather flat or so, and in the second half, it might start going up again.
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%-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?
Well, yeah. A very good question. First of all, we are... you know, when we ran 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 are... you know, we have a... we have a bigger pipeline to generate the same revenue. That's basically... then we've made some changes on our sales organization to... to be more efficient, so to speak. And then we are looking at efficiencies over there. But I think... I would say that the bigger thing is that the... you know, we've... the number of pipeline needed to close a 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...
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. It was very complicated to... it was not easily to say, but you understood. Yeah. 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... 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... how we do have... we are in so many different industries. There are so many people paying us runtimes nowadays.
You know, 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, you 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 the fourth quarter actually dictates where this whole year is going to end. That's basically it.
All right. Thank you.
Thank you. Yep. Thanks a lot. Thank you very much for listening and watching, and we'll see you again in the first quarter results. Thank you.