Hello, welcome to Qt Group's Q1 2026 results presentation. My name is Hertta Närvänen. I'm the communications lead at Qt Group, and I'm here today with our CEO Juha Varelius and our CFO Ann Zetterberg, who will be presenting the results. After the presentation, we have time for questions, first from the room, and if time permits, then from the line. Let's get going. Stage is yours. Please go ahead, Juha.
Thank you. Hello, everyone. My name is Juha Varelius, CEO of Qt, we're gonna go through the Q1. Pretty much the same agenda, business highlights, market trends, then Ann will talk about financials then outlook guidance for rest of the year. If I look the Q1, our net sales ended up EUR 52.7 million, an increase of 11.6%, on comparable currencies, 18.4%. We're pretty happy on that. EBITDA margin, 9.6% and EUR 5 million on Q1, that was pretty much on target as well. ARR, which is the new measure, we're now telling, EUR 155 million, the increase of 32.7% in comparable currencies.
That takes away the flux, you know, the one and three-year licenses and whatnot. Of course, we have the IAR in these figures. Overall, a kind of a typical first quarter, which is usually very slow for us, and fourth quarter being the best and busiest quarter, which then reflects on the first quarter numbers. If we Well, foundations for long-term growth, I'm gonna comment here a bit. The developer license demand remains strong. If we look our industries, the defense is nowadays the probably strongest one. Medical, another, industrial, they're all doing really well. Automotive industry obviously is suffering specifically in Western markets.
In China, the automotive market is doing good, but the Western automotive market is suffering, and the growth overall is very slow over there. If I look on the regional trend, the we have a APAC. APAC was actually last year pretty much on our plans. It is still continuing pretty much on our plans, so we are happy with APAC. That's a pretty robust execution over here. Over there, and in EMEA, we have rather volatile situation where the European export companies are suffering, and that comes mainly from exports to U.S. The tariffs keep on going up and down, and there is a some uncertainty which is shown in decision-making.
If I look on the first quarter, our EMEA overall was showing pretty robust execution, and it was growing as well. In America is actually the only region where we're not performing according to plan, and that was pretty much in same thing last year. I'm gonna talk about a bit of AI, but when I usually say that AI, we don't see the AI effect in our demand, well, we don't when we discuss with customers. Of course, in safety critical industries like medical, they don't wanna use AI. It's very careful that what type of software goes into devices. Same goes pretty much on defense sector on many devices. In automotive, a bit more.
If we look and we discuss, we actually discuss quite a bit with our customers that how are you using AI, how are you utilizing AI. We see that developers are using AI, but they're coding. How they use it is that they use it to code with Qt Framework. They are utilizing Qt Framework in their coding when they're using the AI. That's what we see. Believe it or not, I've been getting quite a lot of questions about AI and its effect on Qt. We've done customer surveys also. It's not only my own discussions. We've done customer surveys that we put an external company interviewing customers that how is your use of AI and how does that affect and how do you see the effects on Qt?
The answers being that, yeah, we utilize it or we don't use it at all or the AI usage is forbidden. There are some companies that they actually forbid using AI. We didn't get any responses that AI is replacing us. I understand that everything develops, but that is as of today. If I look our execution on regions, it's fair to say that if APAC and EMEA is executing pretty well and all the headwind we're basically getting against our own plans is coming from United States. It's more than the AI effect, basically. IAR, We are still happy with the acquisition. I'm sure we're gonna continue being happy with the acquisition.
The big theme for IAR obviously is that it's on perpetual licensing, and we're selling, we're changing that into subscription licensing. When we do that, the perpetual license obviously is more expensive when we go on subscription, which is on a yearly base billable license, the price is less. The IAR revenue is decreasing this year, and the profitability is also suffering. When looking at things in the beginning of the year, I was wondering it was a bit slow start. It was going very well in the U.S. and somewhat good in EMEA, and slower in APAC. Now if we look overall the subscription change, we did set a pretty aggressive target, and we are on that target now.
I'm happy on the execution on that subscription change on IAR. That puts pressure on the IAR profitability this year and on also the revenue will come down. That means that more aggressive we can be this year on the subscription, the more it'll grow next year. We're gonna do as aggressive as we can and take the hit now and then have a healthy growth. Of course, it's a license business, which means that the profitability will follow next year. IAR integration is proceeding as planned. We've laid the operational foundations, the unified organizations, aligned core systems, established data sharing across teams. We are combining sales efforts with the IAR sales and onwards.
I've done few integrations in my career, I'm pretty happy or I'm pretty confident that this integration is going to go well. You can always sense it from the company that's being bought. You know, all the IAR people that I've met, they are anxious. They are happy for this merge. They are keen on working together, the mood is very good. I do expect that this integration will be successful going forward.
Well, as you know, there is war on Iran, as a matter of fact, the high oil price is affecting not only on a gas pump and maybe inflation and whatnot, the oil effects on the price of a glass and paint and numerous different products which our customers are using for their production. That is the thing that makes them cost conscious, that their production prices will go up because of this oil, and it's not directly the oil or energy, it's the products that are being used, like paint, for example. We do have our long-term customer relationships. They are very solid. We've done and we're doing, like, on a second quarter, big renewals with our very long-standing customers. Our customer relationships are, like, years and 10 years and 15 years.
Once companies start using Qt, they are usually so happy with it that they extend the usage, and the customer relationships are extremely long. That's a foundation for our business. We've despite doing these cost-cutting measures we're doing now, we do our product is very competitive, and that's, of course, something that we tend to keep good care of. Well, of course, there can't be a presentation in today's world not talking about AI. Here is a bit of a snapshot that the what we're doing in different products. We do have different, specifically, there is Qt Framework. Sometimes, we kind of think that Qt is a set of tools. It is a lot of tools too, but the it's foremost, it's a framework.
A framework is something that developers like to use because there are reasons for using it, also AI likes to use it. We do follow, for example, our competitors and what are they doing on AI, what kind of functionalities they have on in their products and frameworks and whatnot. I can say that we are at least on par or better in what capabilities we are offering. That basically goes on Qt, Squish, Axivion, and across Qt Group, I've always been getting questions that the do we use AI in our own work? Yes, of course, we do. Throughout the company, we use AI in pretty much in each and every department, which means that the it is being utilized as a tool.
Do I see that AI is replacing office people or our R&D people per se in today's world? No, I don't. It's a tool that makes our people more efficient, but it's not replacing at this point of time. If we look a bit of these products, on Qt Framework side, like I said, it's we see it as tool for developers to be more efficient. In larger terms, if we think we do have different kind of skills, AI assistance on Qt Framework to help developers using Qt. Also we see that we've enabled the general AI language models to learn from Qt so that developers can actually use AI.
I know that I've said this sometime in my earlier presentations that nowadays we, you know, the first step actually in this world, it's a bit of like on internet that if you have an internet site, you need to make sure that Google finds you. Well, on AI world, you need to make sure that AI finds you. If developers wanna develop something, the AI doesn't find your framework, then of course you kind of, you know, it doesn't find, right. We've made sure that with these general language models, they do know how to use Qt. Developers can use Qt, and AI agents do find it. There we have a one trade benefit compared to our some proprietary competitors that Qt is open source and has 1.5 million developers out there.
There is a ton of material that AI can learn from that how to code with Qt and how to be better on Qt. You probably are going to have a question that what about pricing? I have nothing more to say on that pricing, but of course, we're gonna go more towards a consume-based pricing models where whatever is being produced using Qt, the license payment is based on that. That's the logic behind that is that now we have per developer seats, but if a developer is using AI, which is using Qt Framework, we see that that's also payable.
We've had actually discussions with some of the clients that are doing that already. There seems to be no problem in that it's payable. The matter is how it's measured, what is the pricing, and all that. We're working on it. In that sense, the pricing will change in the future. Well, Squish is very tightly integrated into Qt, so I know it's a bold statement, but I, you know, if you develop something with Qt, there is really no reason in whatsoever not to use Squish for that testing. They're so well integrated, they work so well together.
Over there we have a AI-generated test script exploring applications, Vision IQs, Squish Vision is visual testing that adapts into interface, the changes in the interfaces, and that's been very well received. On Axivion, well, it's more like owner partners. We work with NVIDIA and Qualcomm and the likes on different types of solutions. Axivion is a very complex, very good product. Over there, I think that is something that AI is not going to be replacing in any matter and it does a specific job. Like I said, across Qt Group, we're using AI extensively and looking efficiencies over there. On the future outlook, I'm gonna come back and talk about, bit about this changes we're doing currently.
Before that, Ann will talk about some financials.
Yeah. Let's talk about the financials. Yes, as Juha said, we had a growth of 11.6%. The exchange rate impact this quarter was EUR 2.7 million, so 18.4% at comparable currencies. Not too bad. We had distribution licenses, there was about 2.3% growth. Developer licenses and consulting were about flat compared to last year. The maintenance revenue almost tripled compared to last year. This is of course the IAR effect because IAR has a higher share of maintenance revenue, specifically as we are pushing all of the developer licenses into the balance sheet with subscription transformation going from perpetual to subscription.
The ARR, as Juha also said, it was EUR 155.9 million, a growth of 27.7%. Of course, there is some IAR effect in this too. The growth at comparable currencies, there was a currency effect of 4.5%, so the growth of comparable currencies was 32.7%. We have a very stable customer base, and therefore we have a very stable IAR growth, ARR growth, I was gonna say, not IAR growth. It's difficulties. Too many Rs. Too many Rs, yes, too many short. The organic growth anyway of the ARR was 11.5%, which is very, you know, stable growth over time also for the Qt Group without IAR.
The IAR transfer into subscription is going to push this further because more of the perpetual revenue will go into being annual recurring revenue. This, I think this number shows that Qt has a very stable customer base and a very stable business and solid business. Looking at the expenses, you can see that the costs grew a bit, they grew by 23% compared to last year. Part of it is because IAR has a lower profitability and also because we are pushing down the revenues because with the subscription transformation. The personnel costs grew by 26% almost, so it was 1,120 people at the end of Q1.
That was a growth with 232 people, which is almost the number of IAR employees. Basically that is what we grew with. Now we have the cost implementation project, and we are aiming to cut about EUR 20 million, we are moving towards where we were in 2025, see if we will reach that. There is also of course some costs in other costs, external services and so is obviously targeted first, consultants, marketing, various things like that. There are also other things as that is part of the integration that will over time generate cost savings. That will not happen very quickly, IAR has 13 offices around the world in pretty much the exact same spots as Qt has.
Just merging the offices and the legal entities which are also in the same spots will over time save money also under other costs. The profitability was around EUR 5 million EBITDA, so the margin was 9.6%. That is basically because of IAR's lower profitability and the need for efficiency work around the cost side. A little look at the balance sheet. We have goodwill of EUR 166 million or EUR 167 million. Most of that, EUR 122 million, refers to the IAR acquisition. The rest of it is older acquisitions, froglogic and Axivion mostly. Under other intangible assets, you have the other technologies are intangible assets from those acquisitions. It is technology acquisitions, brand acquisition, and customers as it is split in the PPA.
IAR has EUR 87 million of those intangible assets, and froglogic and Axivion has been written off over time. They're written off over 10 years, so those are lower values now and are at 9 versus 17. Also, as I mentioning to you last time, IAR also has EUR 6 million of capitalized assets, capitalized development assets. It's the IAS 38, where we treat development work into specific assets, and we capitalize it in the balance sheet. This will over time not happen anymore or will be synchronized to doing it the same way as the Qt Group does it. For the Q1, we had capitalized EUR 0.4 million then, so that affects the P&L and also increases the balance sheet.
Under other non-current assets is mainly the right to use assets, which are our premises around the world, so this is bookkeeping exercise and then all, of course, the intangible assets like furniture and stuff in those locations. Trade receivables basically are the same level as last year, and we have a healthy cash balance of EUR 56 million compared to EUR 80 million last year. It is lower because of the acquisition in IAR mainly. We also have, because of that, we have interest-bearing debt in the balance sheet of EUR 143.5 million. Bank loan of that is EUR 135.3, and that refers to the IAR acquisition, which will be amortized over time. The rest of that interest-bearing debt is basically leasing debt related to those IFRS 16 assets.
Under other receivable and other short-term liabilities, still we have those EUR 5.2 million that refers to the acquisition of the last IAR shares. That arbitration process is still ongoing in Sweden. We hope that it will be close soon, but it is a little unclear when it will happen. Those monies reserved for that. I guess I can end the presentation on the financials by saying that looking at the balance sheet and saying that we have a pretty healthy balance sheet still with a high share of equity. It is over 50%, even though we made quite a few acquisitions over the years. With that, I guess I will end and hand over to Juha for the outlook. There.
Thank you.
You are welcome.
Outlook, well, the, on IAR, the big thing obviously is the subscription change. We, our plan is to transition in the next three years, and as that goes as planned, the year-on-year, that's gonna be a decrease on IAR only in 2026 and 2027 onwards, it's gonna be growing and then continue the growth. We did an aggressive plan. We are on that plan, so it seems that, well, it goes in the U.S., it's, it's so typical way of doing business that the transition is no problem. In EMEA, bit slower, and in APAC slowest. As a matter of fact, the same we had on Qt at one point.
Now seeing a few months this year how it's been going, I've no doubt whatsoever that we're gonna be successful on that on the next three years. We do have this operational reorganization announced in April, where we said that we're looking to improve our cost base by EUR 20 million. Well, again, maybe taking away questions around that. As you know, in Finland, we have this period of negotiations, and during the period of negotiations, we are negotiating, and now we are in that negotiation period. There are no decisions being made in Finland. The negotiations, I think the, well, the minimum time is six weeks. I think we still have two, three weeks to go. There's really nothing I can comment on that part on. That negotiation is ongoing.
What comes to the other countries, we are doing that in the United States and Europe based on the local legislation. I'm confident that we're gonna be able to reach that EUR 20 million cost saving we're looking for. That includes the overall, you know, other cost savings and personal cost savings. We're also doing those structural changes in a way that it would not affect on the sales targets that we have. Since we are in already on the second quarter, we do believe that once these negotiations are done, obviously in some countries we've been progressing faster, we're gonna get savings already for this year. Once they're done and whatnot, we can announce what is the outcome of those negotiations.
We do expect to get savings already for this year, and we do expect to have a that EUR 20 million full year savings on 2027. Well, the challenges in market environment continue, but like I was explaining in APAC's actually been performing on plan last year and now in the beginning of this year, so I've no reason to believe that that's gonna change in any particular way. The outlook is good. Pipelines look good. The execution over there is good. In Europe, we've had this headwind on these large companies we have that do have large export business, whether to China or to U.S. Well, that's kind of a leveling off as well. On the Q1, if I look at the license sales in EMEA, I was pretty happy about it.
In U.S., I think, well, we've had a lot of headwind last year and whatnot, but that's leveling off now. We do expect that we're gonna get the operational efficiency in U.S. backwards, back on its normal track as well going forward. If I look, you know, different parts of the business, there is a consulting business is not a huge part of our business, as you know. That's kind of performing on a lower end. They are a bit behind what we were expecting. License sales is doing fine, which is a good sign. The deviation we're getting, if I look year-on-year comparisons, the only deviation we're getting is gonna be on the distribution licenses.
As you know, the distribution license sales comes that when new projects are starting, companies may do pre-buys companies, or they launch a big product group, then there are a lot of distribution licenses being bought. Distribution license growth is not very, how would I say? It's not stable on quarter-on-quarter. Instead, it fluctuates quite a bit. That is the fluctuation we are having on year-on-year. When we're looking on a whole year distribution license estimate, what we, what we are having, what we did our budget and what we were budgeting for the whole year. It looks like that the whole year is going according to a plan pretty much.
Well, I talked about AI, I talked about the market environment, I talked about the different regions. As we get the better performance and execution in U.S., we're gonna get a healthier growth also on the business. IAR integration is going well. I don't see any problems over there. Although the revenue is coming down, but it's, you know, it's a deliberate decision we've made, and I don't see any cultural problems over there. On the contrary, I see two teams really wanting to work together. I'm not doubtful at all that that integration is gonna go pretty well.
Of course, it helps that the, you know, both are global companies, but the headquarters are in, you know, there is a Nordic culture in both companies. You know, the cultural fit is kind of there naturally. Long term, well, the need for software, the need for products being differentiated by software defining the value of products, that's not gonna go anywhere. We're gonna see that more, not less. In that sense, I do see that there is a lots of growth potential going forward. We're not changing our full year estimate as of now, and we're saying that we're gonna grow at least 10% year-on-year comparable currencies and operating profit at least 15%.
Like I said last time, we're not giving a range, we're giving a bottom, we're giving a floor. I have, you know, I'm very confident at this point that we can reach those numbers. There's no reason to change them. Yet again, of course, the fourth quarter is the biggest quarter. It remains, you know, that that's where really the difference is made at the end of the day. As we look forward, I think that this market is pretty stable state at the moment and things are going forward. Having said that, well, of course there is always this disclaimer that, well, what's gonna happen in Iran? Well, who knows?
I think it's gonna get solved one way or the other. The reason is that there's gonna be so much pressure from elsewhere. Asian markets depend on that oil export and whatnot, so I don't think that, you know, there are so many parties that can't afford that conflict to go on forever, so it's gonna be sorted out. Yes, it's fair to say that we kind of have, we're used to the fact that there is a bit of a surprise every quarter, at least either tariffs or wars somewhere or, you know, whatnot. Let's assume that that will continue this year. Life goes on.
I'm happy we had a, given the circumstances, a pretty good start for the year, and things are going in the better direction. I think we're gonna have a decent year going forward. With these cost savings and then IAR turning into growing revenues, 2027 numbers are, I think they're gonna look pretty good. With that, thank you.
Good afternoon. It's Matti Riikonen, Carnegie. 2 questions. I'll take them 1 by 1. You mentioned that already last year and also this year, the U.S. has been a kind of problem with the execution. What have you done and what will you do also going forward to kind of amend that so that it would be in the growth again as your internal plans probably suggest?
Well, we've done people changes. We've done a bit of an organizational change over there, and there are personal changes quite a bit. Those are probably the biggest ones we've done. There is a bit of a special emphasis on bigger accounts. There's been more top management involvement and these type of things. Pretty typical measures when you have issues. I would say that we've had a management change in U.S. in U.S. sales, and we've changed also a bit of structure. There's been changes in middle management and those are the biggest changes.
We don't see a need for, you know, all the encounters we've had with customers over there being not product related, I would not say. There is I'm not alarmed by the fact that our product would not be competitive and whatnot. Then, you know, unfortunate headwinds that have nothing to do with our own doings, but not naming any customers. Some customers did have quite aggressive plans building new platforms for their next product generations with different power plants and whatnot, and they were put on hold. These type of things did happen over there, so that they affected quite a bit on our performance over there. That's basically those are the basic things.
The headwinds been coming from United States, and the sales basically those been affecting most of our performance.
Right. Thank you. You mentioned that many of your customers are in a savings mode. How do the customers save? Do they just buy less licenses? Do they get discounts from you, or do they just postpone purchasing?
Well, when there is uncertainty, then there is postponements. Like I said, I mean, you know, there have been some really big postponements on that. There were plans to build a totally new platform for the next set of products, or software platform for the next set of product line and then expand that to all products. It was decided that, well, let's not do that. Let's continue with the old one and try to hang on. There are those kind of things. If you, not referring to any particular region or company or country, but you know, it's been on the news that specifically automotive makers been postponing their electric vehicle initiatives going forward and instead continuing that let's continue with the old ones.
That's what we've been seeing quite a bit. On medical, they none at all, or defense again. In automotive and in consumer business. Another is that people calculate really carefully how many developer licenses they need and whatnot. That's kind of where people are more cautious. Of course, when there is uncertainty, even there is a higher cost, people tend to buy one-year licenses prefer over three-year licenses. We have, which is kind of our. That's the maturity, right?
We do have industries, and we do have customers that would like to buy like a 10-year license because they want to make sure that Qt is available, and they have a license, and, you know, there are limited price increases and whatnot, so they have control over it because they know that they're gonna be using Qt for the next 10 years.
All right. Thank you. Finally, you talked about IAR and the license model change. What kind of attractions are you offering the customers that you would like to shift to the continuous licensing model from perpetual? Does it mean that there is always a discount, or does it mean that just to trigger as many customers as possible to change, you offer some kind of discount and then try to find the remedies in the next year's pricing increases? Could you just discuss a bit how are you going to drive this change? Obviously you need customers to move. You cannot just order them to move.
Yeah, that is true. I mean, maturity of the change comes from the fact that if you think from perpetual license sales, on perpetual license sales, it means that you only have new customer sales because the ones that bought the perpetual, they already have a license, and they're never gonna buy, right? For the new customers, for the typical IAR sales, which have been new customer sales, it's kind of easy that the subscription is the only one available. Well, comes the so for the new sales, no questions really. This is just that you are a new customer, and this is it. This is how it goes. For a existing customer that has a perpetual and is buying new ones, then the discussion is that, well, what is this licensing change?
It's a discussion about the, that you have this perpetual license versus you have a annual license. When you have a new license, of course, the, well, you can call it discount, but it's the perpetual licenses always has been more expensive. When you buy a subscription license, obviously the price is less. We're not pricing it in a way that, hey, that here is a price, take this and get a first year 40% discount. That's, that's not the way we do it. There are, when you go on this new licensing model, then you are entitled for the fact that when there are updates and whatnot, you are capable of having those, that's basically the route to go.
Which means, well, it's less than 10% on Qt base that are still on the old licensing model, but on Qt, and they'll probably never change. They built, you know, they built something 10 years ago, and they're just maintaining it, and they will never upgrade to anything. When we did it on Qt, we introduced 6.0, and we told the customers that 6.0 is with subscription. If you wanna have the latest version, then you have to roll into this subscription. That's the only model. If you wanna stay in the old versions, you can stay with the old terms and conditions. Nowadays, majority of the people have changed and over time. It's a really small fraction at Qt base that hasn't changed.
Those are typically customers that they've built something one-off, and then they're just maintaining it, and they change it. They're staying, and they're all Usually people do want to get into newer versions. Another thing is that when we did this at Qt, we were not in the forefront of things, but we were maybe not Well, obviously, we were not the last one since there is IAR. Nowadays, I think it is so typical model of buying software and subscription that you don't have to kinda explain it. I mean, all the software is in subscription mode now. Now the next change is gonna be then on a consumption-based usage, which IAR is moving towards as well. I mean, our whole group, of course.
All right. Thank you.
Hi. Jaakko Tyrväinen from SEB. On the ARR growth during the quarter, meaning the quarter-on-quarter growth of 2.4%, could you elaborate a bit how much of this was driven by old Qt licenses and, on the other hand, quality assurance tools, and as well as IAR? Did the transformation from to subscription had positive or negative effect here?
Oh, you mean the IAR shift to subscription?
Yes.
Well, as of now, we don't disclose these BU numbers, so I don't even have them out of my head that what were those. I can say that they were all growing. IAR obviously contributed, but not, you know, more than half of the, you know, everybody was contributing. All the ARR are growing. We're not disclosing those separately, so I don't have those numbers in my head. They are all growing, so it's not something that is coming only from IAR.
Still on ARR, did you say that Qt's organic growth was 11.5? Yes. Year-over-year?
Yes.
Okay. Thanks. On the distribution licenses, which had a pretty nice quarter, but you are referring to certain volatility. Do you have any visibility to that volatility over the summer quarters?
Summer quarters, summer months. Yeah. Well, I mean, you know, I would say that it's last year on second quarter, the distribution license revenue was exceptionally high if I look on the overall. I think we're more gonna be on a normal level. We're gonna be more on a flat level. I mean, Q1, Q2 on a distribution licenses are gonna be pretty much the same, maybe a bit higher on Q2. If I compare last year on the Q1 and Q2 numbers, there were big distribution license deals last year. That's actually the biggest effect. If I look on all the other numbers, I think the consulting is gonna be a bit soft.
Developer license sale is gonna be okay. Distribution licenses will be less year on year than they were last year. Yet again, they tend to fluctuate. If I'll, you know, the guidance we're giving on distribution licenses for the whole year, the visibility I have, you know, we're gonna be pretty much on the same level than we were last year. I mean, last year on distribution licenses were very good. This year we're gonna be, you know, a few EUR million below or somewhere over there. The biggest deviation on this year is gonna come on this Q2.
Good. Thanks. Lastly on the AI topic, just to confirm, so you're stating that you're not seeing customers possibly downsizing their teams and thus the number of licenses because of the AI efficiencies? If so, that's just them, kind of, squeezing overall costs?
Yeah. That is. They are squeezing costs everywhere. Now they're gonna be squeezing more because if you think the automotive manufacturers, like I said, you know, glass is gonna cost more, plastic is gonna cost more, paint is gonna cost more. The automotive manufacturers because of this oil prices being so high, their manufacturing cost per car is gonna go, it's just the physical cost is gonna go much higher. On top of that, they have tariffs, right? It's, you know, it's gonna be a big issue for them and also other manufacturing companies on medical defense, whatnot, it's no issue at all. It varies industry by industry.
It's not only, you know, our own internal discussion, we hired a external consultant. He made a number of, you know, well, he did a market survey on many aspects, but one was AI, and he made massive amounts of calls and interviews on customers, on our customers, interviewing the use of AI and the effects on AI. Developers are using AI to be more productive and whatnot, but we don't see layoffs over there in this embedded world. When we look on the, when we look on a web technologies, right? That's a bit different story.
Good. Thanks.
You're welcome.
Hi. Thank you for the presentation. Waltteri Rossi from Danske Bank. About the pricing model change that we have discussed today, if you don't see any kind of impact on demand from AI, why do you also say that you will change the pricing model? What's the reason for that then?
Well, we don't see any layoffs of developers, but of course we see developers using AI. If you think that the, you know, old world developers, well, the company, you know, the only way to extend building more software would have been hiring more developers. Now the same developers are using AI, from our perspective, we see that there is more use of Qt Framework, and that's where the world is going. And we see more and more that happening in the future. I think that more and more the new customers will be such that developer will be asking from AI that, "I wanna build something like this.
Let's use Qt," or, "What should I use?" Then the AI is probably proposing that, "Hey, let's use Qt," and then they start building something. That's where the sort of the consumption-based usage is gonna go. If our customers, if our pricing is based on per developer seat, and then our customers start using automated tools to generate code as well, it's kind of, from our point of view, it's pretty logic that, well, hey, you need to pay for that too, right? The question is, on the long run, this is Well, we really, you know, of course this is gonna be developing, that's for sure. There is, couple, you know, few things, first of all, that are gonna be issues going forward using AI.
One is this consume-based pricing, and the other is that if you use AI on Qt, you build something with Qt, using AI, and you don't pay a license, who owns the code, right? Kind of that if you use AI building software and AI goes and uses frameworks and code being built before, does it make your code and you have automatically copyright for it? Well, no, of course, because many times AI just copies code. It's like that if you do proprietary code and you take open source components, put it in the proprietary code, and then say that this is my proprietary code, well, you're violating the open source rules, right? If you're using AI and AI just writes you something, can you be certain that you actually have right for that software? Hmm. That's one.
The other is that like I said, nowadays all the AI companies are losing money, like a ton, right? At some point, of course, they will lure us to use AI, and we start using AI and get the benefits of it. Of, you know, the cost of using AI will increase at some point, right? Otherwise, these AI companies will never make their money back that they're investing and, you know, billions and billions. The pricing will change, and then the dynamics that what is really the benefit of AI will change. Now we get to use for everything pretty much free of charge, right? So that's gonna change a bit.
The third is really that what is the behavior, because how it's gonna go, so far I usually see that people want more, and then they want even more. If you think that you have 10 developers doing code, and then you start using AI, are you happy that you generate the same old level of code and you fire, you get rid of five developers, and you stay on the same level, or do you keep the 10 developers and generate a lot more code and do a lot more products? In the history of people, they usually want more, and they develop more. This kind of a thinking that AI is gonna come, and the productivity is gonna get much higher without any coders, well, that's not gonna be the case.
I mean, the assumption that AI comes and all the software industry is gonna disappear, that ain't gonna happen, right? Coders' daily work will change, and the simple things will get simpler, and they will get done by the automated, by AI. You know, the creative thinking still will be there. You know, there are many things and hurdles we go forward, but the, it's gonna be an interesting time. What we don't discuss very often is that we see that, well, there is a threat there, and there is a threat there, and whatnot. Of course, we can turn this coin around. That let's assume that AI is so powerful that it does all the coding. What would it mean to us? Well, we do have these customers that we know that what hardware configurations they're doing.
We do know that what they want to put and build on their products. We do know that we do have tools that we can let them that, "Hey, design what you want." If AI does everything, we can become a solution provider. We can start selling total solutions, right? I mean, this doesn't necessarily mean all threats to Qt. I'm not saying that we're going into that direction. All I'm saying is that, of course, this will give also opportunities for us to expand our business going forward.
All right. Thank you for a good answer. Maybe two quick ones. First, the Western automotive. Do you think that that business will ever recover for you to the point it where it was, like, two years ago? Roughly how much is automotive of sales today versus two years ago?
Well, is the amount of vehicles gonna be, the demand for vehicles gonna be about the same in, that it was in previous years? I think overall in that market, if we ever get into this vision that the, that, I think it was 10 years ago so, that there was predictions that in two years we're all gonna be driving self-driving cars. Well, I have an old Volvo, but I can tell that I drove myself. It's been taking some time. I mean, you know, if we do get in a world that we have a lot of self-driving cars, then you could assume an idea that instead of, you know, maybe you have a car, but while you're at work, your car goes and, you know, you rent it to Uber.
Your car is driving people around and then comes to pick you up. Is there then a need, total, a need for total amount of cars that are being, you know, sold as of today? Well, of course not, but that change is gonna take a long time. Would there be a bit of a consolidation in car manufacturers? Let's say five years from now, are we having the same automotive manufacturers as we are having today? Probably not. There is gonna be a consolidation. That we probably will see how that will be evolving. The automotive is now I should know this, but well, I can't give you exact percentage. You know, we said that it was around 20% long time ago. Now it's substantially less.
Defense is the biggest vertical. We have medical right after it and industrial third. If I looked at what the automotive market is growing this year, probably, you know, the market growth probably, like, flat or 2%. That's, you know, my educated guess. Yeah, European car manufacturers are in real trouble with the tariffs and the competition in China. Is U.S. car, you know, Ford, GM. They're not doing very well, as you know. It's gonna be a struggle. Are people still buying cars? Do they need about same amount of cars? Yeah. When self-driving comes, then that's gonna change the world, but, you know, many, many years ahead. It depends on that do we get the deals back at that point with the new players. I think we do.
Maybe one quick one. On IAR, I'm not sure if you said how much IAR sales were of Q1. If you said, I missed it, but could you please repeat? Once again, the SaaS transformation that IAR is going through, did it already have an impact on Q1, on its sales?
Well, IAR impact on subscription sales is having impact all the time because the revenue, you know, compared to last year, IAR revenue is going down. Yeah, it's having effect on Q1. It's gonna have effect on whole year. Next year, we do expect double-digit growth on IAR. This year we expect it to go down, and it is going down compared to last year. The subscription change has been going very well, which means that the downward pressure on IAR revenue is at its highest, let's put it this way, and on profitability as well, which means that next year, you know, more aggressive we can be this year, more aggressive the growth is gonna be next year.
It's definitely, with this change rate, the IAR growth next year is going to be double-digit, probably starting with the two. The, this is not a promise. It's the first quarter. Let's see towards the end of the year. It's going to be a double-digit growth next year and the very healthy over there. The IAR profitability will swing back. The year after that, it's going to be on a very healthy level. We have no reason at this point to doubt that that's not going to happen. On IAR revenue, no, There are too many Rs. We do tell the ARR, we are not disclosing the different BUs over here. Yeah, I didn't say it. You didn't miss it.
Thank you very much.
Thank you. Well, hey, you can ask one. Yeah, we can go a bit over time. Yeah, if it's an easy one.
All right. Perfect. I don't know if it's an easy one, but I'll ask you anyway. Antti Lyytikäinen from Inderes. On the ARR organic growth of 11.5%, just to drill down on the number, is there any kind of one-off positive effect from IAR's transition to subscriptions kind of boosting that number? Or is that kind of not in the numbers?
IAR, that's the organic growth.
Yeah
at comparable currencies for just the Qt.
Right. Okay.
Without IAR.
Yeah. Okay. That's helpful.
Yeah.
Okay. Thank you. We're over time now. Hey, thank you very much for coming. We're relatively happy on the profitability and the development on the first quarter. Second quarter, we see consulting being on a bit soft. Developer license is doing very well. Year-over-year comparison on distribution, there's gonna be quite a lot less sales on last year. If we look the distribution license on a whole year, it's going pretty much where we're predicting. Last year, and a bit below from last year. We are not changing the guidance. We're pretty confident that we're gonna meet those numbers over the course of the year. The integration is going well.
We've done a lot of work in the U.S. to turn that around, and we're seeing first signs that that is also happening. Looking forward, we're pretty confident that this year is gonna be okay year and a change year and means that when we build this foundation, 2027, we're gonna get back on track with the very healthy profitable profitability numbers and sales growth as well. With that, thank you.