Good afternoon, and welcome to the Qt Group's second quarter results presentation. My name is Heli Jämsä, IR Manager, and with me today are CEO Juha Varelius and CFO Jouni Lintunen to present the results. After the presentations, we will first have Q&A in the room and then via conference call lines. Without further ado, please, Juha, the floor is yours.
Thank you. Good afternoon, everyone. My name is Juha Varelius, and I'm the CEO of Qt Group. I'm gonna go first through the business highlights for the second quarter briefly. Then, Jouni is gonna walk through the financials and then I'm gonna after that talk about the outlook and guidance for 2022. After the presentation, we're gonna have a Q&A, and like I said, we'll start first here in the room, and then we go into conference lines. If we look at the second quarter business highlights, we had a net sales growth of 9% year-on-year and an EBIT of EUR 9 million and personnel increased by 30 people, so we've been continuing our growth investments.
As we all know, we did change our guidance already, so I'm gonna talk about the future outlook later. Where we did see a softness in the market in Q2 was in Asia-Pacific. The Asia-Pacific was behind our targets. Europe was pretty much on target, and U.S. was just a little soft but the very little. We can say that the Europe and U.S. went into the target and Asia-Pacific was a bit below. We've been able to attract new customers very well and also the business in APAC grew, so I'm not saying that it was the.
Of course, our sales targets and our targets are very high, so the APAC was not entirely to be able to meet those targets. What we've been seeing in the market is that there is uncertainty, so we've been seeing some projects being pushed forward. We've been seeing our customers being very cautious and what we saw specifically was that the sales geared even more towards the end of the quarter. That's always been the case, but now we saw that even more.
The decisions are being postponed as much as possible at the moment. I think that Well, it's basically the uncertainty. We all know the inflation, the war and implications, the high energy prices and whatnot. What we see is the customers being cautious of not building inventory on high prices and then maybe being forced to sell them later with lower prices and also the uncertainty that how much the interest rates are gonna go up and how the economy is gonna slow down.
I think that we saw a bit of the same type of behavior when corona was first time introduced to the world, but then the uncertainty actually went away fairly quickly. Now I think that we're still in the uncertain times and of course this poses a bit of a risk also for the future. In Asia-Pacific, or specifically in China, we also saw that, as we all know, the COVID restrictions are much harder than they are in the Western world.
We see that, you know, even just a small infections here and there and entire cities are closed. That of course affects a bit on closing business, having customer meetings, etc . I think that that poses kind of a bit of uncertainty also for the second half of the year, specifically in China that the how strict the COVID restrictions will be there. Our profitability increased as we planned and it was a 24% of net sales. I think that on a profitability side I don't see uncertainties that much because we do increase our personnel quite a bit, and we're hiring quite a bit of people. We're also using subcontracting quite a bit.
For us to manage the EBIT on the guidance levels is. It's we wouldn't have to do anything else than just slow down a bit of recruiting if need be, which we haven't done. We are still hiring as much people as we were thinking of, and we're adding personnel as we speak, and that's what we're gonna be doing also going forward. I'll talk that a bit more when we go into the future outlook. We're gonna continue our growth investments as planned and we're not intending to slow down there at all. We also do have a good sales pipeline for H2 and now I know that some of you may remember that I said the same thing about two months ago as I did.
Now we have even a bigger sales pipeline, which means that the cases that we weren't able to close in the second quarter, most of them are being postponed forward. The sales pipeline is actually bigger. Of course, now I'm very cautious on that because we weren't able to close them, so that's why we took down the guidance.
I'm not expecting that. I do expect that some of those projects will be postponing even further. However, we've been able to build the pipeline even further. I don't see in that sense a softness in the market going forward. Some of the Q2 offering highlights, like I said, we continue our growth investments as planned. We introduced this Qt 6.3 significant performance and quality improvements yet again.
We had a new Qt Design Studio 3.5 enhancing the 3D scenes. New Qt for Android Automotive 6.3, and Qt for MCUs long-term supported version. In R&D, we continue developing the product. You're gonna see new versions, new enhancements. Also, there is not a mention of the QA tools. We didn't have any highlights on the QA tools development, but the QA tools sales been progressing very well. The froglogic acquisition and the integration has gone well, and the QA tool sales is going very well. The combination that we offer a software development tool, and we offer software testing tools, it's a very good fit. I'm very happy with that acquisition as well.
We actually had a press release on the collaboration with Bosch. I think that the main takeaway over here is that now we're also available in AutoStore platform. Bosch resells Qt product to the market. When Bosch is a Tier 1, they are offering Qt alongside. For us it's of course we're very happy and proud that such a household name as Bosch is our partner in the automotive sector, offering and now enabling the digital cockpit with their offering together with ours.
Bosch, we all know Bosch from many different products, consumer electronics and so on, but they are also a very big automotive Tier 1 supplier, so they support quite a lot of services to automotive industry. Now we are working together, I'm very happy about this opportunity going forward. This very shortly the Q2 update. I'm sure you're gonna have lots of questions afterwards on it, looking forward to that. Now I'm giving the floor to Jouni to go through some financials.
All right. Thank you, Juha, and welcome from my behalf as well to the earnings calls of Qt. I'm gonna go through some specifics about financials, some discussion about net sales, income statement, and then balance sheet. As discussed already earlier, we did grow by 9.3% year-on-year in second quarter. We were somewhat soft, as Juha said, in Asia Pacific when it comes to the consulting and developer licenses sales. We did see a positive, good trend on the distribution license sales even though they missed as well slightly their targets for first half year. As said, the licenses and consulting was the growing entity.
Especially in the second quarter, we did see a major exchange rate fluctuation, namely USD, which got stronger by a bit. This gave us like a EUR 2.5 million tailwind for sales. In the comparable currencies, our net sales grew by roughly 2%. Also in this regards, we need to remember that last year Q2 we did have this one specific large deal that made it a very tough comp. In the first half, we grew by 19.9%, driven as well by licenses and consulting. Overall, the FX impact in the first half is EUR 3.7 million, meaning currency neutral sales increased by 12.7%.
We expect to see a very strong quarterly fluctuation going forward as well. It's because of timing of the large deals, timing of distribution licenses sales, and also we will remain seeing the impact of the exchange rate fluctuation going forward. Roughly 2/3 of our revenues are in USD, and we are reporting in euros.
Here is a summary of our income statement for the first half year. First I'm gonna talk through the materials and services. This is the account which we use mainly for booking the third party professional services to execute the consulting projects. This is an item that we can use when balancing the volumes in regions for consulting work actually.
We are not preparing all consulting for customers by in-house, but use third-party services as well. There was a slight decline in that in the second quarter, which is in line with the development in the consulting revenues as well, and 9.3% increase in the first half year. Our headcount grew by 34% year-on-year, up by 130, and we did grow our headcount during Q2 by 30 employees. We are heavily investing in growth initiatives going forward as well, mainly in sales operations and R&D. Personnel expenses did go up by 25%, reason being the headcount additions. No news in depreciation and amortization.
It's up by 100% from last year because of the amortization of froglogic that we acquired last year in April. Other operating expenses, it's up by 40%, and this is a reflection as well of the growth initiatives. We are doing a lot of external R&D. We are doing a lot of projects in ventures development, and then we are seeing increase in travel expenses as well after two long years of COVID. The main drivers for the other operating expenses account. This leads us to EUR 15.5 million earnings before interest and taxes or 22.7%.
EBIT margin, we did see a major sequential increase in that from Q1, 14.8% to 24.4% as planned, and our EBIT margin being now 20% for the first half. We see EUR 1.7 million financial income actually in our P&L now for the first half year, and this is mainly driven by the unrealized items because from the intercompany accounts. There is this part that will keep on fluctuating from quarter to quarter, and now when we saw a major change in USD, it kicked in as strongly. Income taxes actually were pretty low actually for the second quarter.
There are some tax deductible items from our long-term incentive program that we paid out in the first half year, and that makes our effective tax rate to below 10% now in the first half year. The net profit for the first six months is EUR 14.0 million or 20% down slightly percentage-wise from last year. Then couple of words about the balance sheet where we see only little movement. Our current assets are up by EUR 2.4 million from end last year out of which cash is bringing EUR 1.2 million.
Cash is not up more because of the cash flow impact from the long-term incentive program, and then some acquisition earn out payments in the first half, adding up to some EUR 13 million. Equity up by EUR 4 million. Net profit EUR 14 million positive and offset by the LTI impact in the first half. That's pretty much it. No significant changes in other accounts in this regards. Now I will hand over back to Juha to go through the market outlook and the guidance for 2022.
Thank you. If we look at the long-term prospects or long-term view, I don't see actually any change on that. I mean, there is a continuous need for graphical user interfaces. There is continuous need for touchscreens. There is continuous need to develop more software for embedded devices, and there is continuous need to test that more and there is a continuous lack of developers in that sense. There needs to be software performance done in a way to be able to accomplish all this. There is a growing need for our Qt offering and our QA offering, our test tool offerings. If we look at the market in a longer term, few years ahead, I don't see any change on that.
There is a clear need for a cross-platform tool like ours. If I look at the competition, we do have competition. Are we losing more to the competition or are we losing less? I don't see any significant change over there. Our product is still very competitive in the market. I don't see any worries on that. Well, is there uncertainty in the market? Well, I'm sure that all the people in the room know that you're following different companies you know that there is a lot of uncertainty in the market at this very moment. Do I see that? We did lower our growth estimate from 30%-40% now into 20%-30% range and with a very good EBIT.
I do understand that it's a great disappointment to lower the growth estimate, but I do wanna highlight that our numbers are still very strong. We do still have a very strong growth and a very strong profitable growth that we are experiencing and showing. Obviously we do see that on a short-term we've seen all the economists' reports and whatnot. I think that the consumer spending will slow quicker than majority of the people are expecting. I mean, I do see that. If I look in the United States, how high the inflation is, if I look in Europe, I think that, you know, with this combination, the consumer spending has to come down.
I mean, it just can't continue as it is. If I look at our customers and how they're developing however this happens, they may have to slow down a bit on their inventory building. They may have to slow down a bit on selling their products. Can they slow down in a significant way for developing new products? The answer is no. I think that as this uncertainty goes away, we're gonna get more back to normal. With uncertainty, I mean that there is more clarity that what's happening in the economy. The basics I see over here are still very strong, and I do believe that we have growth for many years to come.
Our guidance for 2022 was updated into 20%-30% year-on-year growth and profit margin to 20%-30%. As I said before, we are now currently working on the next year plan, and as a matter of fact, a year plan before that, or after that. By that I mean that in order to grow, we need to hire people at least like six months ahead. For the next year's growth, we need to be hiring people already now because, you know, onboarding takes some time. If they're salespeople, it takes some time to build the pipeline and so on and so forth.
Those hires we're continuously doing and will do so, and now we're working on the next year's. We're finalizing our next year plan that what revenues we're targeting and with what personnel. I'm very happy that our attrition rate has been relatively. It's good. Well, on industry standards it's good. We have attrition rate which is single digits, where on the IT industry, it's like 20%, 13% is like a norm. Also we've been able to attract new talent quite a bit, so we're adding new people, which is a good thing. The labor market has been somewhat competitive as we know.
In that sense, I think that a bit of a cool down in economy on a longer term might be even a good thing. Looking forward into coming years, I think that nothing has actually changed in that environment. If I look to the second half, if what we see now, how much pipeline we have, how much the sales activity we have, it all looks good. I think that we're gonna be able to deliver on these growth guidances that we've been given. I'm sure there are gonna be lots of questions about the future outlook. In that sense, floor is yours.
Hi, Felix Henriksson, Nordea. I have a few questions. I can go one by one. Firstly, on your guidance for 2022, I'm sort of curious on what it is sort of expecting from the external operating environment. For example, what needs to happen with the Asian lockdowns in order for you to achieve your growth guidance? On the distribution license side, how do you expect that to play out given the changing supply-demand dynamics that your customers are facing? Thanks.
Could you repeat the first part of your question?
Essentially asking about what your guidance assumes for the operating environment?
What my guidance assumes for operating. What needs to happen?
Yeah, exactly. In terms of China lockdowns, etc .
Oh, okay. Well, for our operational environment, we expect the things remain pretty much as they are at this moment, at this point of time. We are, of course, we do expect that you know, it's not. Let's put it this way that if there will be major lockdowns in China and people won't be able to move at all, everybody's gonna be at home, then obviously it's gonna affect our ability to close deals in specifically in China. Then again, we have to keep in mind that we do operate globally in many various countries, so that would have to be relatively severe. If I look into in Europe, I think that.
Well, it seems that the war is not escalating. It seems that things are relatively okay over here. Our Russian business wasn't very big to begin with, so that doesn't affect us so that if the war doesn't escalate in Europe more than that it stays where it is, I think we're gonna be okay. I think it's gonna be a in runtimes, will it have effect this year on what happens on the distribution of products? I don't expect that the effect so much. We're being affected now on the component shortages. We are a bit softer on runtimes that we were anticipating before COVID and all this hassle. Runtimes been growing okay.
I mean, you know, there is good growth on runtime. I don't expect the economy affect much. As the economy slows down, then next year obviously is gonna be a very good question because I think that the cold winter in Europe and consumer spending going down, that's gonna start affecting us around year end and next year. That's gonna be next year is gonna be a tricky year for many of us.
Thanks. My second question relates to your licensing model and the sort of subscription-based model that you introduced in late 2020. Can you help us out at all on how large of a share of your customers are currently in that model? How much of the sort of tailwind from the, let's call it, embedded price increase that is still yet to come from that shift?
That's a better question for Jouni to answer. Indeed, we've done the subscription change. It does vary a bit. We do sell mostly one- or three-year licenses. Now currently I would say that the, you know, we're mostly selling one-year licenses. That's a typical that what customers been now buying. What are the exact effects, I'll hand over to Jouni to answer those.
Sure. I mean, we have been now like 20 months into the licensing model change, and we assumed back then that it's gonna take roughly three years. We are somewhat two-thirds in time. We are not probably quite there in the amount of licenses, probably. I don't know, somewhere between 50%-60% of that, I mean, from the license base back then.
Obviously there will be a tail that will never be changing into subscription, at least in the very short run. You know, some long lifecycle customers who want to stick with old versions or who wouldn't necessarily need the latest one. The impact or tailwind from that change is kind of limited if you think about that from kind of year-on-year perspective since we were on that strongly already last year. It's very minor impact from there.
Thanks. Then my final question relates to M&A. You've been sort of hinting that you might be doing some additional bolt-on acquisitions this year. What's the latest on that front?
Well, we're gonna announce it when we announce it.
Okay. I guess to be a bit more specific, how's the pipeline looking? What exactly are you looking to add? Perhaps how are the multiples at the moment as the public company multiples have declined?
Well, yeah. It's yeah, a very good question and I'm happy to highlight that a bit more. Well, first of all, what we've seen obviously is that the multiples have gone down in the stock market, right? We've seen and specifically on the technology side. What we haven't seen that the multiples would have gone down on a private sector, right, on startups and the non-listed companies. Their multiples are still high. I'm having a hard time. I mean, you know, I don't wanna spend too much money on acquisitions, right? I mean, fair amount, right? That, that's the first thing. What we're looking
If you look at our long-term strategy, what we have currently, what are our assets? Well, we do have a great product, right? Now we have two great products. We have froglogic testing tools are really good and Qt technology is really good. They're really unique, and that hasn't actually changed at all. We do keep developing them further.
The feedback we get from developers is very good. We've built a global sales channel, global sales network, so we have local salespeople and pre-sales engineers, so we can serve our customers in a local language in their premises, we can help them out. We do have those Fortune 500 companies. We have a very impressive customer list.
It's unfortunate that we can't make it public, but you know, it's many known brands, big brand names as our customers. Our long-term strategy is that when we're looking at these customers, they are all getting. Some of them are more in the software development, some are coming into software development.
Many of our customers, the fact is that they were producing products before, and it was the physical factors, form factors that made the difference, and now it's the fact that software needs to be embedded in those, in those products to be competitive. It makes all the sense for us to add products into our portfolio that will help those customers to be more efficient, more competitive. Therefore, we're looking into the future.
If you look five years down the road, what are you gonna be seeing when you see Qt is that we have multiple products that we add on our sales channel, that we add on to our existing customers. Then the next question comes that, well, are we gonna buy those products or are we gonna develop? Well, we're gonna buy. Because if you think like the testing tools, would've we been able to develop a testing toolset ourselves? Well, probably, but it would've taken a long time. It made all the sense in the world to acquire and add into our sales channel.
To your question in that sense, are you gonna be seeing acquisitions where we acquire products that fit into our software offering in a way to our existing and becoming new customers that can enhance their software development capabilities? Yes, you will. Are you gonna see acquisitions rather than developing in-house? Yes, you will. Our internal development will be more closely related, developing Qt to be even better and QA tools to be even better and so on.
The totally new products we're gonna acquire. What is our pipeline? Well, we've been and we are in different phases on different acquisitions. Of course, as a public company, we announce them when we announce them. Are we active on that side? Are we actively working on that side? The answer is yes. I'm not gonna give any timeline. I mean, you know, it closes when it closes. If it doesn't, it doesn't.
Thanks. That's helpful.
Yeah. Rest assured, we won't spend the shareholders' money unwisely.
Hi, it's Matti Riikonen, Carnegie. Couple of questions. First, regarding your internal estimates now behind the guidance numbers, do you expect that the softness that you saw in Asia in Q2 would be kind of escalating more in Asia? Or do you think that there would be more other areas like Europe and U.S. kind of becoming as weak as Asia? How do you see the different geographic areas developing going forward?
Well, we took our estimate a bit down in Asia-Pacific. Obviously when we got these numbers, Q2 numbers, what we did was we went through what happened, what deals were put forward, and for what reason, and then we looked at the pipeline for the rest of the year, and we made new estimations that how we estimate the H2 to develop.
Yeah, I think that the biggest softness or the biggest downscaling was done in APAC. We estimated what the APAC did in the first half, and we kind of looked at what we estimate to happen in APAC in the second. Asia-Pacific is the area where we're gonna expect to see the most softness also in the H2 going forward. We don't expect that much softness. We expect U.S. and Europe to be pretty much on target.
If you say that it's the kind of consumer-driven softness in the economy coming from the inflationary pressures and others, is it logical that that would be isolated only in Asia and not happen in Europe and U.S.?
Uh, uh-
Because I think you yourself mentioned that we have seen inflation in all parts of the world.
Yeah.
What is your reason not to think that that would be escalated in other parts of the world?
Yeah. Well, like I said, the runtimes were a bit soft, right? They're still growing very well. The softness we got from Asia-Pacific was developer licenses and consulting mainly, right? We expect that to continue in Asia-Pacific. We don't see that much happening in the target setting in EMEA and U.S., and if I look at the pipelines, the softness.
Well, of course there is gonna be softness, but to your question, where is the greatest softness gonna be? We say it's Asia-Pacific. Of course, that could also affect when we've done our budgeting and our target setting, we've done it there a bit wrong in a way that we've been expecting too much from Asia-Pacific rather than in the U.S. Yeah, we don't. I think that, to our targets, the biggest gap is coming from Asia-Pacific, yeah.
All right. Could you describe in what ways the customers are now kind of saving money? Is it? You mentioned that they are making shorter license term payments.
Yeah
They're postponing projects. Have you kind of lost some projects altogether or have you just seen that they are being postponed?
Well, yeah, that's a good question because the first one we see is that the people prefer buying more one year licenses rather than three year licenses even though we see that the projects will be longer term, which mean that they are spending more money in a shorter term to have the flexibility. We have also seen that they try to start a bit more cautiously. In our business, when this is a developing.
We're selling a developer license, which means that the customer has an idea that this is what we're gonna be starting to build and then they have plans that this is what we're gonna be doing, but they haven't yet started and the development process. That you can actually postpone very easily, right? You can put it in the next quarter, and then on the next quarter, the customer may decide that I'm gonna put it yet in next quarter ahead, right? There is no imminent need. That's also in our sales in a way that there is no imminent pressure for customer to make a decision this particular moment. Whereas when you have something under development, you're already developing.
If you then need something, you can downscale it maybe or whatnot, but if you're already in the development process, then you need to go forward. You can't anymore postpone it. Sometimes we do actually see that you know, the customer may postpone a long time. I mean, that you know, it's. You can easily postpone two quarters or three quarters something and maybe then later decide that I'm never gonna do this, right? I would say that the. Well, it's. I think that it's hard to generalize, but I would say that on certain items, you can postpone maybe a quarter or so, and on certain items, you just need to do it.
We do have 70 different industries, so I'm trying to figure it out that how to generalize it. We kind of are seeing it a bit of run wall, but in this sense you can kind of a smaller product you can postpone. If we're talking about automotive models, then you usually, you know, it goes like a train, right? You don't move anything. You have so many moving parts. If you're going to build something simpler, then you can postpone it and you can go with the old product for a while. Yeah.
All right. Have you found any kind of common denominator for the customers that have been postponing projects or-
No
... saving-
No
...money?
No, we haven't. Well, so much that we've looked into it, we haven't found any common denominator that this particular industry would be now slowing down more than this particular industry, no.
You also don't see or do you see any pattern with large customers saving more than small ones or the opposite?
No. No. No.
Okay. One question. Can you explain why you were so bullish so long before Q2 was ending, and then it took quite some time, basically a month, before you gave the profit warning? What happened in those times, and was this quarter kind of so back-loaded that you only knew when the quarter was finished that you are not actually going to meet your targets? Or what happened?
Well, many questions. Yes, yes, and yes. Our quarters are backloaded, so if you look at the-- Our June was actually very good. The month of June was good, but we do large part of our sales, and I don't know why, but this has always been the case. It gears towards the-- If you look at the last two weeks of the quarter, and if you look at the amount of sales we did during the last two weeks of the quarter and even the last days of the quarter, it's so substantial that we actually don't know in that respect before it's ended where it's gonna end, right? It is. It's very backloaded.
The first month of the quarter is always the slowest, and then the second kind of gears up, and then the last two weeks. We can easily do 20% of the quarter sales in the last two weeks. Yeah, it's backloaded, right? Then if you look at the, you know, if do we look euros or do we look so-and-so euros? You know, it's EUR 1 million orEUR 2 million difference in that sense. You know, if the sales is couple million more or couple million less, that makes the difference, right? It is very backloaded. Then if you look, you ask that, "Well, what do you
What took you so long?" Well, what took us so long is that, well, first it took a little while to get these results, then it took a little while to verify what would be the new guidance, where do we believe that with these results we're still gonna meet the whole year target estimation or the whole year guidance. Then of course we looked into that, well, this is the result.
We looked at where we were soft, why were we soft, the pipeline moved a bit forward. We looked at how much we would have to do sales in the second half to be able to meet the targets and where we are likely gonna get. We had to go through different regions, see that what is the outlook and to be careful on giving that outlook. That actually took the time. Right when we had the numbers, we had a board meeting, and right after the board meeting we gave a new guidance.
All right. Thank you. I'll stop now here so that others will have a turn, and then we'll come back for more.
Just to follow, I mean, I think we have, you know, how many countries we have? 13, 14 countries. Yeah. It's a fairly complicated setup, so, you know, it takes a little time to make any estimates.
Good. Hi. Antti Luiro from Inderes. Just trying to get a feel of what are the realms of possibilities in this market when the uncertainty is hitting your customers. Do you see a possibility of customers actually reducing their overall R&D spend, and that causing your developer license and consulting sales to actually decline in the short term? How likely would that be?
Well, very unlikely. If I look at the second half of the year. Very unlikely. What, you know, what we've seen even publicly is that we've seen that some of the growth tech companies, they've been saying that they're gonna slow down their recruiting. That means that they're not looking to lay off or they're not looking to put the recruiting on hold. They've said that they're gonna slow down a bit of their recruiting. If I look at our customers and what they're building, can they actually imagine a future that they are not going to be bringing new products to the markets? No. I mean, that's, you know, you can't think of an.
If our customers would think that this is now the end of development, it would be that they're gonna wind down their business and then they're done, right? I mean, the automotive manufacturers, they're gonna be introducing new cars. The consumer electronics is gonna be introducing new products and so on and so forth. It's not gonna stop.
I mean, I don't see any of that. What I do see on a short term, however, is that nobody actually knows what's gonna happen on the second half of this year and what's gonna be the winter kind of coming that and most companies are managing their cash flows, and they're trying to secure that they have enough cash in the bank, right? That's what they're doing.
That's the number one priority probably for them. Nobody wants to develop inventory at a very high price and have a high inventory and to be forced to sell that at the lower prices. The inventory management is pretty key over here. I think that these uncertain times for us is probably gonna be maybe third quarter or so.
I think that you know, three to four months ahead, we're pretty much gonna see that the how the world economy is gonna be shaping up and then things are gonna be starting accelerating again and people start making decisions. Now there is so much uncertainty in the economy that the many companies are being cautious. Would this kind of be the end? Well, no, of course not. No.
Indeed. On the second half of the year still, I guess it's fair to say that the way your sales pipeline has been moving and converting has changed quite significantly in the last couple of months. Since you changed your guidance. How easy is it right now to estimate how the pipeline is moving forward? Can you give some commentary on that?
Well, it's very hard. What we're doing is that we're obviously going through the pipeline very tightly and seeing that what's in there. I mean, at the end of the day, the pipeline, it's how the pipeline is created, it's a view of individual sales guy, right? An individual sales person has, say, an opportunity and he creates, say, a pipeline, and we are as we are people, you know, we do have sales guys that their close rate of a pipeline is like 100%, right? They and some others are more optimistic and so it's kind of a. That needs to be gone through and of course their managers know how they behave and it all builds up.
Yeah, obviously we're gonna go through, and we have gone through all the cases that, yeah, were pushed forward and being very cautious now that, yeah, how they're gonna be closing down. I mean, the fact of the matter is that we do see that we're gonna be growing in the second half very nicely. I mean, we don't see that this is the end of the world.
We actually do see that we're gonna be growing very nicely. However, looking at what we were able to accomplish in the first half of the year, of course the comparison was very high. Well, we knew that beforehand, so it's no excuse, but the comparison was very high. If I looked at how we grew in the first half of the year and what was our guidance, 30%-40%.
If I looked at are we able to grow so much on the second half that we can catch what we were behind on the first half, well, no. That's. It doesn't look like that at the moment. Are we gonna have a nice growth on the second half? Yes, we are. Are we gonna be seeing a nice profitability on the second half? Yes, we are. I mean, you know, it's not that gloomy in that sense.
Good. Thanks. I'll move forward.
Hi. Jaakko Tyrväinen from SEB. Still continuing on the second half, if you look at your own kind of a budget or estimate for the second half, how large share of that would be license renewals? And on the other hand, how large share distribution licenses would play there? Is the kind of a role of distribution licenses growing towards the second half?
Well, the distribution licenses are growing in the second half, that's for sure. I don't know that we haven't actually disclosed any of the numbers publicly that you asked, so I don't know how to reply.
Well, let me continue. How have the renewals, license renewals on the development license side developed lately? What are you expecting going forward? Again continuing, you're stating that the average maturity of the licenses is shortening but what it has been historically. What is the underlying average maturity in your-
Well, like I said before over here, that when you are about to start a project but you haven't yet started, then you kind of have options, right? You can postpone it and you can put it forward and whatnot. You have the ability to make the decisions. Once you've started the development, you don't have a whole lot of options left because when you've started to develop something, you know, you probably purchased all the components, you've probably secured the production facilities, whether that they are factory or whatnot, and you've done all this.
You've basically, once you started the development, you've done the investment, right? You keep on going. Are we gonna get the license renewals? Yeah, for sure. Because, you know, it's very unlikely that you start the development of a product and then you would, you know, put it in the trash that, well, you know, the market doesn't look that good. You may play down a bit on the volumes you're gonna be producing, but. Are we gonna get the renewals?
Yeah, we are. I mean, and I don't see, you know. On new customers, when they haven't or our existing customers when they are thinking about starting a new project, there you have a room to play that am I gonna start the development now or do I wait a couple months and see where the world is going? That's on the new sales, that's where you have a bit more room to maneuver.
On the maturity on the one or three year licenses, I don't think we've disclosed that publicly. Of course, we can also direct that sales by giving sales incentives and discounts and offers and whatnot if we wanna manage that in some particular way. How we do manage it in a particular way that if you think that you're gonna be developing and needing the license for three years, it would be cheaper for you to buy the three year license than a one year license 3x , obviously. The price is higher.
If I think that what the customers now prefer to do, I can see that you know, maturity of the customers that are buying now the one-year license are gonna be buying another license next year because the fact that the development usually takes much longer than a year and you need the developer licenses also for maintenance purposes.
When you develop something, you buy a few licenses. When you're kind of are deciding, then you start really the development and you need more licenses, and then it kind of goes down, and then you need to have license developers maintaining the product. It, you know, you need the developer licenses for the whole life cycle of the product, but the peak being there when the big development happens.
In that sense, usually our customers are very long-term customers. I mean, you know, it's seldom that there is a very short term. But in these uncertain times, we do see that there is more demand for a one-year license. In a sense, I don't mind because I know that, you know, it's gonna help next year, and it's a better business for us that they're gonna be renewing next year.
Okay. My final one goes to, basically on the same theme a bit. Have you used price discounting in order to close the deals in the second quarter, and could you consider discounting the price of licenses in the second half in order to boost your sales?
No. I mean, you know, we are in this business in the long term, and you know, I've always, you know, I view this business as a great opportunity to build a great software company that's origins are in Finland. I think that I have, and the management has, and the board, we have a very long-term view on building this company so we're definitely not boosting quarterly sales. We're definitely not giving extra discounts just to boost because that would be very short-term, so no. We won't in the future. Well, at least in my time we won't in the future because I don't see.
You know, once you go into that you can, you know, one quarter we'll be happy. We do have on top of that quarterly fluctuations. I mean, you know, like last year the second quarter was very good. We do have a quarterly fluctuation so we don't have any reason to do that. We do wanna build a long-term business. We wanna build a long-term sustainable business and long-term customer relationship. I think that I prefer to see ourselves as a customer strategic partner and strategic partner is something that we understand what they're trying to accomplish.
They tell us what they need, and we try to develop the product and our offering in a way that they can be as productive as possible and in that kind of a environment, you know, it's not a question that do you give a 10% discount or not. It's the building a long-term relationship and partnership, and that's what we're aiming to be with our customers. If it's just one area cheap price, I mean, you know, there are lots of competitors you can try out.
All right. Excellent. Thank you.
Let's have the final quick question.
Yes. Thank you. Waltteri Rossi at Danske Bank. Hope we have time for a few questions. First of all on the a bit slower FX constant growth we've seen in H1, just to confirm that you have not seen declining amount of your developer licenses that you have sold, so that big customers that may have let's say a few hundred commercial licenses out, they haven't lessened the amount in H1?
Well, of course they are always. I think I understand what you're asking. The answer is no. Our big customers what they tend to have is that they have a large number of licenses if you think for example automotive manufacturer, so they have a large amount of licenses and they have continuous amount of projects coming. The ones are ending and the new ones are coming and so they have a constant need for the developer licenses, right? Of course, you know, we do have 70 industries and there might be a customer somewhere that happens.
Like I explained some time ago that in the beginning you have few licenses, then the development really starts, you have a high amount and then it goes into maintenance mode. If you have only one project you know the amount of licenses when you go in the maintenance mode lessens. In our customer base they are Fortune 500 companies, so there is a continuous flow of development of products.
What we do see is that when we have a customer, a new customer, they start developing a new product with Qt and they realize how good it is. When they have a next project starting they add Qt on that one. Instead, on big customers we see that there is a growing need of licenses when they introduce more and more products on their portfolio for development using Qt.
Clear. Very quick final one. Just to, you know, get over many of these questions, have you considered giving out the number of commercial licenses out there and also the average sales price so we wouldn't need to ask these questions, we would see the data and understand the business operations better?
I think that this is a continuous development. I appreciate your questions, and I always find them very useful for not only thinking the business on a different view when you ask these questions, and I think that this is a continuous development and we need to develop our reporting to fulfill more the needs of our owners and analysts. The answer is of course yes. Yeah.
Great. Thank you very much.
Thank you.
Thank you. That was all the time we have today. If there's anybody on the conference call lines please send us an email. You can see the email address on the final slide. Now back to you, Juha Varelius, for final remarks.
Thank you very much. Thank you, very good questions. Thank you for all the participants. As said, we had a bit soft first half of the year. If I'm looking for the second half of the year I see a very nice growth ahead of us, so despite of the uncertainty I'm looking for a prosperous H2 and I'm looking that we'll be able to deliver nice growth numbers on the third and fourth quarter. Thank you very much.