So, a warm welcome to a Modelon presentation of the Third Quarter Financial Result, as well, as well as the first nine months. My name is Jenny, and I will moderate the Q&A session at the end. This presentation will be recorded and, of course, put up on the website after this presentation. And if you have questions during the presentation, please use the Q&A function or the chat function, and we'll pick it up in the Q&A session afterwards. And if you want to ask your questions yourself in the Q&A session, just raise your hand, and I make sure to put you forward to Magnus and Jonas. So with that introduction and without further ado, I would like to hand over to Magnus.
Thank you, Jenny, and again, welcome everyone to this presentation of Modelon's Interim Report for the Third Quarter. My name is... Let me see. Can flip the charts. My name is Magnus Gäfvert. I'm the CEO of the company and also one of the co-founders, and with me today, I have my colleague, Jonas Eborn, CFO, and also co-founder, and sitting in the next room to me.
Yes. Good morning, everyone, and welcome.
So today, after presenting the bullet highlights of the quarter, I'll do a quick introduction, overview of the company, and then elaborate a bit on the business highlights of Q3. And after that, I'll hand over to Jonas, who will present you with a financial update of the period. And after that, as Jenny mentioned, we'll go into a Q&A, where you are very welcome to submit your questions. So, bullet highlights of the quarter, we are pleased to see a revenue growth amounting to 19%, which is at the same level as the year-to-date growth of the previous quarter.
We're seeing a ARR growth at 10%, which, as we have previously described, the growth is a bit slowed down by the strategic cloud transition that we are conducting during this period. And also, we can report that this transition is proceeding at high pace in the quarter, and that we have substantial new capabilities coming out from that and ready for rollout at the end of the quarter. We're also seeing an improvement, continued improvement of our EBIT, with 4.4 million SEK compared to last year Q3, driven mostly by revenue growth and also, to some extent, by cost reductions. So, quick overview of the company, Modelon. We are a business-to-business software company in the system simulation sector.
That means we're helping technology enterprises across industries and around the world in digitizing engineering workflows related to the innovation, development, and operation of high-technology products and systems. And that could be anything from a car to an aircraft, a power plant, in whole or in parts. And in digitizing those engineering workflows, you need to have at hand a digital representation of your product, a digital model, and that's precisely what we provide, software tools to create such models and to use them for these purposes. And this brings tremendous benefits to our clients. It means that they can develop their products faster, at lower cost, and arrive at both higher performance and higher quality in the end. Our flagship product, Modelon Impact, is pioneering the simulation industry, being the first cloud-native source platform for system simulation.
It is based on proven, high-threshold technology that we have been developing over more than 15 years. It was first released in the third quarter of 2020, so that is precisely three years from now. We're investing in this platform to accelerate and grow in our annual recurring revenue business. We are pleased to see also that since we put Modelon Impact on the market, we have grown our annual recurring revenues consistently quarter by quarter, with the deviation in the previous quarter, as we discussed then, which we are now recovering in Q3. We are highly internationalized for our size. We are around 100 people distributed over offices in North America, Europe, and Asia, headquartered here in Lund, Sweden, where me and Jonas sit.
The global simulation and analysis market is very big. It's growing consistently and will continue to do so for foreseeable future. That, in combination with our very strong product positioning, our geographical international presence, makes us set ambitious financial goals for our business to reach an ARR growth of 35% in the medium term, to turn cashflow positive in the short term, and to, in the long term, approach and exceed EBIT margins of 20%. With that, let's move into some specifics of the quarter. Again, the ARR growth is our key performance metric. So the growth in the third quarter was 10%, and taking us to SEK 48 million.
The Modelon Impact flagship product is the strategic growth driver for our business, and with that, we saw a growth of 19% during the third quarter. As mentioned, this growth is temporarily slowed down by extended sales cycles resulting from this transition that we are conducting for the cloud. The purpose of that transition is to make this product more streamlined to deploy and also more scalable so that we can- it can support a stronger scaling of our business. We expect that this transition will continue throughout this year, and then gradually, we will see that the sales cycles come down and that the growth accelerates as a result of that.
As a consequence of this also, we're seeing a larger share in Q3 of our entry product, the Library Suite, in the product mix. The Library Suite is a subset of Modelon Impact with a migration path towards the full platform. Looking at more details on the activity in the quarter, I'll start by introducing the key market segments that we are working in, the energy process, industrial equipment, automotive, and aerospace sectors, and also showing here examples of the type of customers that we have in these segments. I believe you can all see that it's very strong brands. They represent leading global innovation-driven technology companies that have the highest possible demands on their suppliers.
So we're very proud to have these type of customers in our customer portfolio. And also, of course, these are... many of these are really large companies and constitute a very strong platform for future growth, as well. And in the quarter, we have won business, new customers, and also upsell business on the existing. The first I mention here is U.S. National Energy Research Lab. U.S. National Labs, you, at least me, I typically think of a very almost science fiction-like technology, nuclear fusion power, things like that. The application here is a bit, is quite a bit more mundane.
It is the case that in the U.S., dryers, domestic dryers, where you dry your clothes, consume about 4% of the total residential electric power. So it's, and they are not very energy efficient. So here is an initiative, research and development to make dryers more efficient by sophisticated use of heat pump technology, and this is then being done with support of Modelon Impact. So it's a great example of a use case where we're helping, in this case, at the national level, really, initiatives to drive energy efficiency for sustainability.
Also in the energy sector, we have a Chinese thermal power research institute, and they are working with what's called upgrade engineering of existing power plants, typically coal-fired. And that usually means may include things such as adapting these power plants for transient operation, and that means that the plants can coexist with renewable energy sources, such as solar and wind on the electrical grids. It can also mean retrofitting technology in tech technologies, such as, for example, carbon capture systems and so on. Moving to the industrial equipment, we have an Indian multinational engineering consulting company. They are using Modelon Impact to create web apps for sizing of domestic water heating systems for a U.S. client. So again, we're looking...
It's a context where we're supporting the efficiency initiatives on domestic or residential electrical consumers. Again, very, very, very nice use case. We also have a Spanish provider of marine vessels and systems. This, they are working also quite a bit in the defense sector, so we don't have that much insight in what they are actually doing with our solutions. We have a Korean multinational automotive manufacturer. They are, this is an upsell, so they are using our solutions in the context of vehicle dynamics design and testing for cars. We have a French multinational—we're moving to the aerospace now.
French multinational aerospace company, they are in both the civil and defense sectors, and they are using our solutions for fuel system design and for hydraulic aircraft systems. We also have a European multinational commercial aircraft manufacturer. And this is also very exciting. This is, there is a, we're all aware that aviation's civil aviation has a fairly substantial environmental footprint. So there is a lot, a big trend in that industry to look at new technology that will make the environmental impact softer. And one path there is looking at hydrogen as the fuel or energy carrier.
And that means you use hydrogen either to burn in a jet engine, but you can also use it in fuel cells to get electrical energy for propulsion or other systems. So, currently, in that sector, and there's a lot of exploration related to hydrogen, and that, I mean, the many, many challenges that needs to be met. We actually have other customers in that sector that are using our solutions for these purposes. I think McKinsey is estimating, or they are forecasting, that the first hydrogen-powered aircraft will hit the market in 2030, and that by 2050, one third of the civil aviation will be hydrogen-powered. So it's a long-term and a very large trend that we are working in.
Overall, in Q3, we—I should say also, yes, among these wins, we also see some with specific short-term growth potential, which is—which is nice. Many of them have also the long-term growth potentials, but in some cases, like now, we also see it's in shorter term. Overall, the pipeline activity has been steady across regions and industry sectors, and we see a stable lead generation from our marketing activities. And the reason that customers choose to work with us, use our solutions, Modelon Impact, is that we are so very well positioned in relation with the big trends in technology industries and the big trends that are driving requirements that is also driving the growth of the simulation sector as such.
And the first is, again, as I mentioned initially, the digitalization of engineering work. It leads to cost savings, better products, shorter times, and so on. And a lot of this digitalization requires precisely the type of modeling and simulation that we provide with Modelon Impact. Then we have the sustainability, clean tech trends, where we are extremely well positioned. We have built into Modelon Impact thousands of models, model components, that represent the technology that is typically used in these applications. And we are very proud to see that the majority of our customers are using our solution for these purposes and in this context, as also exemplified on the previous slide.
And also, SaaS cloud, we are, again, it's a very strong position to be pioneering our sector with a cloud-native SaaS solution, to meet the needs of companies to have strong tools for collaboration, information sharing, and data integrity, and so on. So this is a trend that we all know also has been accelerated by the pandemic. This slide, I will walk you through it. It's not as complex as it might appear. It's basically illustrating the Modelon Impact product business structure and also the activity overlaid with the activity, the focus activity we've done in the third quarter.
So at the bottom here, you see the industries that we serve and where we can, using our Modelon Impact, our model libraries, build digital models of these different types of industrial systems. These models are then used in to perform engineering tasks across the product life cycle of our customers, and that's often illustrated by this V. It's called the V- cycle. So to the left, you have the early research and innovation phase. From that, you go into a more requirements phase and you set the architecture for a product or system. From that, you start to design the parts in detail of the system. You test and integrates the parts to the total product.
You verify, validate, the system, and then you deploy it into operation when it's ready. And in all these phases, there are tasks and workflows where you strongly benefit for working with our type of simulation technology. So we support workflows and tasks across this life cycle. I should say that we have also particular strength in the early phases here, in innovation and research phases. But we are, as we will see on the next slide, also delivering across the full cycle here. And then, these capabilities, we package and deliver on the cloud, on-premise or managed cloud.
and then we monetize the value our customers get out of this by a per user subscription model, and also we monetize on the amount of work our customers are doing, how much simulation analysis you do. And we also monetize on what we call the deploy dimension. That means if you build web apps that you deploy broadly to many users, that's another type of monetization we have. And in the quarter, as mentioned, we're in a transition, and that means that until recently we have had the on-premise installations, on-premise cloud installations with our customers as our primary delivery method. About a year ago, we launched our managed cloud service, SaaS service, and we soon discovered...
The initial plan was to have, like, a step-by-step, gradual shift from the on-premise towards the managed cloud service. We quite soon saw that there is strong reasons to accelerate that transition and move our business faster towards the managed cloud. And that meant that there are some corresponding developments we need to do on the product, mainly on the back-end side, and that's what we're working on right now. We do still see that we need both options. We need—there are some sectors where we need to deliver an on-premise solution, so we're also working to make that on-premise solution more streamlined to deliver and for our customers to operate. So these are the type of activities we're doing in this transition.
And also, based on, driven by the sad state of matters in the world, really, information security is in everyone's minds, including our customers. So we see that the demands, the requirements, and expectations related to information security is increasing, and of course, we need to meet that. So we also have initiatives to make sure that we demonstrate how we meet the necessary standards. And of course, also we're doing improvements in our capability modeling and engineering workflow capabilities at the same time.
Some of this is released on a more continuous basis to our managed cloud customers, and we're also looking forward to more major release in the first quarter next year, where more capabilities will appear. So overall, lots of things happening on the product side, lots of great things, and we look with confidence to putting these in the hands of our customers. And I'll conclude with a couple of customer stories or testimonials that actually represents the two different extreme ends of this V cycle, early innovation, one, and the other is on the operations side. These were recorded at our first international user conference that we held actually a year ago.
We recorded a total of 10 different, very good testimonials—great testimonials even, I would say. The thing is, it often takes quite some time to get these testimonials approved with our customers in the companies. So these are the last two that we published, and they were published now in Q3. I should also mention that we decided to make this international user conference a biannual event, which means that we are now in the planning of the next coming up in 2024. So, stay tuned for more information about that.
And the testimonials here, the first is an Italian multinational innovation company, R2M Solution, and they are specializing in taking disruptive sustainability technology coming out from European research collaboration and commercialize that into products or services. And the context here is technology for the optimization of building energy systems. And we are pleased, very happy to hear how R2M Solution testifies that Modelon Impact is easy to use. They can quickly onboard new users, get productive, and start to produce meaningful engineering results and decisions. And this is precisely the aim we have with the platform. And more precisely, the context here is work in the area what's called demand response systems.
It's you have on the electrical grids, you have producers, that is power plants of various forms, nuclear, renewables, and so on, and then you have consumers. You have some very large consumers, like factories and so on, and they typically plan their operation based on the availability of electricity. Then there are millions of consuming devices in homes, residential, appliances and so on. And they are, there's a very big potential in making them more intelligent to respond to the availability of energy on the grid.
So, there's a lot of work going on worldwide in research, in energy companies, in startups, making ICT solutions where appliances can become more intelligent, communicate with the grid, with the producers, so that the total grid system is run more effective, efficiently, and optimal. So this is what's going on here. The other is ENGIE. And this, we actually have a prior story from them as well, so it's not a new name that we drop here. So, it's a digital twin application. So ENGIE is a very large multinational French energy company. They run lots of different energy power plants. In this case, it's solar power farms.
Solar power farm typically includes thousands of solar panels and a lot of other equipment, inverters and so on, and this is located typically at a remote location in a desert or somewhere where the sun shines a lot. And there is a complexity and cost associated with the maintenance of such plants. So there is a strong benefit of using digital twins as an instrument, as a method to diagnosis, online diagnosis, where you can not only using this technology immediately detect when some anomaly occur, and then analyze what the actual fault behind this is, the location of this fault in this large plant, and you can send out your technicians or service staff to the right place in an effective way.
So lots of value in that. And also with possibilities to also do maintenance predictions, where you not only respond to faults and anomalies that have happened, but you can anticipate faults and proactively service your plant. So it's, again, digital twins. It's an emerging market. So lots of interesting activities going on. In many cases, it's still in pilot phases, but there is a promise that this will actually contribute with a lot of value to a range of industries, looking forward. And again, the type of models that you have in these digital twins is often precisely of the sort that we provide with Modelon Impact. So with that, I hand over to Jonas to talk about the financial developments. Please, Jonas.
You're on mute.
Yes. Thank you, Magnus. So you can move to the first... To the ARR slide. Not this one. Move back one. Thank you. Oh, so just a few points then on our finances. First, of course, ARR is our main KPI. And I'll point out that we are reporting our ARR at constant currency, which means that the historical data here is adjusted to the current exchange rates, which are at a high point. Everyone knows about the high dollar exchange rate. So there are adjustments on the history to show the sort of volume growth with a correct pace. And we are reporting a software ARR at SEK 48 million, growing by 10%, just like Magnus said.
This is slower, temporarily, because of this dip that we had, so in Q2, but also the current transition period with the managed cloud transition into managed cloud. Also then Modelon Impact ARR is increasing by 19% on an annual basis here. This is also affected by the same trends that we've seen. So we expect these to continue growing and growing at a higher pace going forward. We can move forward to the revenues. Thank you. This is increasing to SEK 19.1 million in Q3, annual increase of 19%. It was higher in the second quarter due to a paid-up win that we reported then, an Asian deal, roughly SEK 3 million.
And those types of deals, they typically come from time to time, not every quarter, but at least once or twice a year. So it's not unusual, and we do see that in our history also, that sort of certain quarters, you see a higher software revenue because of paid-up deals. The software revenue is increasing by 13% on an annual basis, recurring, at roughly the same, 14%. You can see the difference between the recurring revenue growth and the ARR, which is due to the exchange rates, the constant currency. So here we see 14%, ARR, we see 10%. The difference there is exactly the FX effect. Service revenues are also growing 32% to SEK 6.8 million in the quarter. We have a good pace in delivery.
We've previously reported that we also seen a good inflow of new service orders and a good pipeline. So it's very good to see that we can continue to deliver on this. And particularly in the third quarter, it's usually a soft quarter for services because of the summer period. But of course, we are a global company, so we are delivering at a high pace. For example, in the U.S., which typically does not take any summer vacation like we do here in the Nordics and Europe. If we look at the development costs, they are decreasing by 13% in the quarter and also decreasing on a rolling twelve months basis. This is SEK 11.4 million in the quarter here.
We do take the costs, the development costs directly as operating expenses, which translates into a negative EBIT that we see here, minus 11.5. So just by chance, they are very close in this quarter. That's not by design or anything else. But we do expect our development costs to roughly stay at this level. We do need to continue our investments. But at the same time, we are careful, of course. We had some... took some savings because of the high inflation rates that we see, and this is showing both in our operating expenses and in our development costs. On sort of a mid- to long-term, we expect to continue investing in development, but at a lower pace than the growth of revenue, of course.
So we can move to the next part here, where we see the OpEx is decreasing. Also the personnel costs are decreasing by 5%, 3%, compared to the previous period. This is due to the savings that we took earlier this year. And I'm very happy that we can continue this despite the sort of high inflation market that we are in. And but I do expect that we're not continuing to decrease the costs. We are affected by the high inflation, and we should see some sort of reasonable, limited cost growth going forward, roughly on the same level as the index, cost index.
Cash liquidity, we see a cash liquidity at SEK 78 million, compared with SEK 127 million at one year ago. So we are continuing our investments. The cash flow is improving. In the quarter, it's SEK -12 million, roughly, which is improving a lot compared with last year. Year to date, cash flow is also improving, SEK 33 million. And this is because we are continuously improving our business, of course, we're growing our revenue. We do expect that we will continue to improve this towards our short-term goal, the cash flow positive in one to three years. And we are confident that we will achieve this. The main reason that we're expecting this positive development is, of course, we're growing our software sales.
We have a business model with paid-up licenses, so the customers, they pay cash at the beginning of the purchase of a new license. And with a growing software business, that sort of gives us leverage into the cash flow position also. And those were the main points that I wanted to make, Magnus, so we can move on.
Yes. So let's see. That takes us to the Q&A. Jenny, I'm handing the word over to you to lead this ceremony.
Thank you, Magnus. I can see that we have our analyst with us, both from Pareto and Redeye, so I'm gonna put you on first. Please, if you want to ask question, raise your hand, and I will put you on after the analyst. Let's start with Stefan Wård from Pareto. You are now unmuted, so please go ahead.
Okay. Thank you very much, and congratulations on a good quarter. My question is a little bit related to things are moving in the right direction, but we're still... I mean, if you look on the past twelve, twelve months, you've consumed about SEK 50 million in cash flow, and I'm a little bit- I would like some more clarity on your financing situation and this guidance to be cash flow positive from operations within one to three years. I mean, if it's three years, it looks like you want to really... Can you help me bridge this so that we can see that you are- don't need to bring in any more capital until you reach profitability, basically? Thanks.
So I can take that question. So we do not see a need for additional cash, additional capital. We are confident in the financial target, as you said. This was communicated almost exactly a year ago. We set these targets with the one to three-year short-term cash flow positive. So you can interpret that into a sort of a time period going forward. We also, as I mentioned in the presentation, we do see sort of an acceleration and a leverage in our business model that we can continuously improve our cash flow. So we see some improvements in this period, and we continue to improve that going forward.
We do not see any need for additional capital at this moment.
Okay, thank you, Jonas. But just to, I think it would help the company if you could add a little bit more clarity on perhaps, can you give any indications on the timing of when you will be operating cash flow breakeven? On the, it doesn't have to be on an annual basis.
I cannot give a date for that. As I mentioned, the one direction I can give is that this goal was communicated a year ago. Short-term means one to two years, and we are confident that we can meet this financial target.
Okay, thank you. Then maybe we can take a couple of questions on the customer segments. Are there any specific areas where you see particular strength in terms of customer segments? And perhaps also some comments on how sales are performing in the different geographical areas. Thanks.
Yeah. So we. Good question. We continue to see not really a change compared to previous quarters. So we continue to see activity in all areas related to different type of clean tech, sustainability solutions, and so on, energy. We have customers, so we are good. A particular type of systems that we are good at is what's called thermo fluid systems, and that means the type of systems where you have a refrigerant or cooling media of some sort that run through heat exchangers and compressors and so on. The type of technology you find in air conditioning, climate systems, heat pumps, and so on. So it's a fundamental technology that's involved in a lot of sustainability or energy type of equipment.
So these sectors, I would say, it gives us activity and strength from aerospace to automotive to energy systems, and it's basically the same type of technology that we can provide. So that continues to be an area where we see a good activity and a good potential for growth.
Okay, thank you.
Mm-hmm. And well, yeah, there was a second part also-
The second part was-
Did you-
... related more to geographies.
Yeah.
I'm often usually interested in how demand situation is in U.S. versus Europe, but also on your progress in Asia.
Yeah. So, we continue to see, U.S. leading in terms of activity. I mean, it's a huge market, and in many respects they are also have been a bit slower than Europe in adopting the type of simulation technology we're representing. So there, we see a lot of potential there, a lot of activity continue also in this quarter, in the pipeline. So it's, we look ahead with confidence for the U.S., on the U.S. side. Europe is stable also. The dynamics are different. So in the U.S., it is more likely that you get larger initial deals. The size of everything is sort of a bit bigger.
In Europe, it may take a bit more time, and you start more carefully with new customers, and then grow over time. It's not... Nothing's changing in this quarter, so it's what we usually see. Asia, again, different type of market, so we're, as you know, we're working more with relying on indirect channels, because long-term relations are of great importance. And if we can benefit from relations that are built up with our channel partners, that's great. That's specifically, particularly true for Japan, but also other regions there. And as we reported in the previous quarter, we onboarded two new reselling partners in Q2, in Japan and Korea. It's still early days.
We're working actively with onboarding, educating them, and as we speak, pretty much, we have people traveling over to Korea to work with our new reseller there, meet customers, and so on. So, activities are good. We are, of course, impatient to start to see the outputs coming from this, but we're confident it will.
Thank you. Perhaps a final question, if I may. When do you expect to reach the ARR growth target of 35% per annum?
I will have to answer in line with what Jonas did on your previous question, that we're the specifics we can give there is what we communicate in the financial targets.
Okay. Thank you.
Thank you, Stefan.
... Okay, thank you, Stefan, and, I am now unmuting you, and then we're gonna put Mark Siöstedt from Redeye on. So, please go ahead, Mark. You are now unmuted.
Thank you very much. Can you hear me?
Yes.
All right. Good day, Magnus and Jonas. So, my first question, could you talk about this future migration path to the full Modelon Impact offering from the Library Suite? What does it usually look like?
Yeah, that's a good question. So as you know, we have been in this business for, well, soon, close to 20 years, in 2005, and Modelon Impact is the, as a platform we've had on the market for only three years. So, the first, in the first period, our main product was really model libraries for creating digital models for simulation purposes. And, these model libraries are now integrated and part of Modelon Impact, but for a long period of time, we sold them sort of separately, and we still do for some customers. So this is basically the structure of the business, but that's why we call the model libraries an entry product to Modelon Impact.
When we have customers using the libraries, we encourage them to take the full step into the platform, and the reason that may take some time is that they are currently using our libraries in combination with other software tools. And when we are to make the transition to Modelon Impact, we need to convince they, we need to make, convince these customers that to take this step, to shift into a new platform, that's all that kind of changes are for on the customer side, if there's not a specific benefit they see short term, they are often reluctant to do the this kind of changes because it just creates some extra work on their side.
So we need to wait for the timing where we can offer, "Now, look here, if you continue to use our libraries on Modelon Impact, you will have this additional benefit." So we're in touch with these customers all the time, or at least once a year to have these kind of discussions. And then sometimes they decide to make the step, or they decide to, they're curious and want to understand, so they try it out. So overall, the migration path for them basically means continue using our libraries, but shift the use, usage software to Modelon Impact.
Okay. All right. And can you also talk about how you can make the on-prem more streamlined compared to today?
Yes. So I mean, the, it's a fact in our market that there are sizable segments that prefers on-prem and the managed service. So at this point, we see that we need to have both options. What we have had previously is basically a version, the same version that we're running as a managed solution. We can also offer our clients to install on their on-premise systems, behind their firewalls or whatever reason they have to work with on-prem. And we are highly, we have highly skilled and specialized teams. We have a setup of our cloud platform that is quite sophisticated, and we have relied on the customer to have similarly skilled IT departments really on their side.
The fact is that the average IT team may struggle with the complexity of this. They may not be used to run a sort of SaaS platform. So we have found a way now to simplify, package, essentially the same functionality in an on-premise solution that we can hand to these customers. We have been, in the past few quarters, quite a bit bottlenecked by supporting our on-prem customers because they need help. Now we see that we have streamlined, we have simplified this packaging, and this is basically something that we're at the end of the quarter have ready for roll out to pilot customers, and we expect that this will have a meaningful impact on this part of our business within short.
All right. And, so you mentioned a range of notable customers in Q3, three of which were in Asia. So I'm wondering how much of your software sales stem from Asia today, and how do the partner sales channels impact margins compared to direct sales in the rest of the world?
Yeah, a bit sloppy, I usually say, and that's probably not the latest data. Jonas, you will have to help me here. So, historically, we've had a fairly even split between our total software revenues between the regions, Asia, Europe, and North America. I suspect that now probably, North America might be a bit larger.
It is higher. It's 40%-45% in the U.S.
Yeah.
I would say Asia is 25%-30%.
Yeah. That was one part, and then how does the use of indirect channels affect the margins? Yeah, I mean, you can look at that in different ways. The cost of sales on our side is a lot smaller when we use resellers. So, I would say that a healthy mix of direct sales and indirect, depending on the market, what makes most sense, is we consider that to be the good way forward. We're a small, smallish company, I should say. So, there's no way with the size that we have that we can serve even so close, remotely all markets and territories.
So if we can complement with reselling partners for specific sectors or specific geographical regions, we see that as a good strategy. We, I should say also that we've worked with the resellers of our this Library Suite for a long time. We are, with Modelon Impact being a fairly fresh platform, so we are pretty much now this year, starting to do some pilot setups with reseller partners for the full Modelon Impact platform. For example, the two that we that we reported in the in the previous quarter.
Mm-hmm. All right, yeah. On the Q2 conf call, you talked about deploy your sharing functionality with Modelon Impact. Can you see this feature or similar functionality increasingly being used in such a way that it is making a material impact on the democratization of simulation in your customers' organizations? And does it have an impact on the upsell on current customers?
Yeah, that is what we very strongly believe. We have a strong interest in this type of functionality from customers. And I would say that we are probably, it's also on the customer side, because, I mean, we can support this as democratization, which basically means that we are, you're extending the user audience from the more specialized simulation engineers to a much broader audience of engineers, magnitudes larger in numbers. So, this is in the strong interest of our customers. They see the benefit of having more engineers using simulation, and of course, it's one of the fundamentals of our long-term growth strategy.
So it relies not only on the capabilities that we deliver to the customer, but they are also transforming. So they need to change the way they work on their side to make benefit of these capabilities. So we are now in discussion with several customers to help them to discuss what is the best way, what are your needs, how do we package a solution based on Modelon Impact, as apps or similar that can deploy to many different users. We actually... One of the customers I mentioned in this quarter was this Indian consulting company. They are making precisely this kind of solution for an American customer based on Modelon Impact, so that's one of the cases.
I also internally here, I read on our intranet about, we're attending different conferences around the world. So I know that we're also working with U.S. customers very actively on this topic. So large U.S. customers that really are exploring what can be done in this area based on Modelon Impact. And, the recent news I got there is that we're building with that particular customer, also strong champions at the executive level to explore such directions. So yes, we see that this is, at least I, I'd say, in the medium to long term, it will be very important for our growth.
In the short term, it will contribute, but that's one of the factors that will contribute to the short term growth. I don't think that particular area will be the dominating one in the immediate term.
All right. One last question from me, and then I will pass on. Could you update us on the partnership with Eicorn Consulting regarding predictive maintenance? How is that going?
It's actually, I don't have any news to share on that, so it's a work that goes on. And I believe what we communicated there is that there is a plan for a number of pilot engagements, and this is, we're executing on that plan.
All right. Thank you.
Okay. Thank you, Mark. That is all in the Q&A. Back to you, Magnus, to wrap up today's presentation.
Okay. Thank you, Jenny. So let's see. Yeah, I'll just show this final slide, repeating the bullet highlights of the quarter, the 19% revenue growth, how we are proceeding with this cloud transition that is temporarily slowing down the ARR growth, and which we see will continue throughout the year, and then gradually, we expect to see the growth picking up again. And also, that we're improving our EBIT by SEK 4.4 million compared to last year. These are the bullet highlights. We have the Q4 year-end report coming up on February 29, so I hope to meet all of you then again. So thank you.
Thank you, everyone!