Qt Group PLC (FRA:2QT) (H1 2026) Earnings Call Highlights: Strong ARR Growth and Strategic ...

Negative Points

• Distribution license sales declined by 32.4% in Q2, a significant drop from the prior year, though anticipated, it impacted overall revenue growth.

• Costs grew faster than revenue, with a 31.2% increase in Q2, leading to a lower reported EBITDA margin of 15.1% before adjustments.

• The IAR subscription transition is negatively impacting short-term revenue and profitability, as perpetual licenses are replaced with recurring subscriptions.

• The company faces ongoing challenges in the automotive sector, particularly in Europe, with customers downsizing and delaying projects.

• The US market has underperformed due to internal execution issues, management changes, and attrition, requiring substantial improvement.

• The company is still undergoing change management negotiations in several European countries, with one-off costs expected to continue into Q3.

• The arbitration process for acquiring 100% of IAR shares is progressing slowly, creating uncertainty around the final acquisition terms.

Q & A Highlights

Q: What is the outlook for profitability and revenue growth for the next year, and what are the key drivers? A: CEO Juha Varelius stated that he is confident the company is heading in the right direction, with profitability expected to improve significantly next year. He explicitly mentioned seeing a 30%+ EBITDA margin for next year, driven by the completion of the IAR subscription transition, the realization of at least 20 million in cost savings from ongoing change negotiations, and the absence of one-off costs. He noted that even with modest revenue growth, the company will achieve healthy EBITDA numbers as top-line growth drops directly to the bottom line.

Q: Can you elaborate on the performance of the IAR business and the transition to a subscription model? A: CEO Juha Varelius reported that the IAR subscription transition is progressing faster than anticipated, with a conversion rate of over 60% against an initial plan of 40%. While this shift puts short-term pressure on IAR revenue and profitability as perpetual licenses are replaced by subscriptions, it is a positive development that will lead to healthy revenue growth once the transition matures. The integration of IAR has gone smoothly, and its sales and bookings are performing very well.

Q: What is the company's strategy regarding AI and potential changes to its pricing model? A: CEO Juha Varelius explained that the company is actively working on a new monetization model that accounts for AI-driven development, moving beyond per-seat licensing to include usage-based pricing. This shift is expected to begin sometime next year, but the company is carefully simulating and testing models to avoid negative revenue impacts. He does not anticipate massive price hikes, but rather a balanced approach to pricing AI usage. He also highlighted that AI presents new opportunities, particularly in offering more vertically integrated solutions and in the functional safety and safety-critical sectors.

Q: What were the main drivers behind the strong developer license sales growth in Q2, and was it impacted by any large deals? A: CEO Juha Varelius described the quarter as "boring" and "typical" with no significant multi-year deals driving the growth. The strong performance was attributed to a general increase in customer confidence and improved execution. He noted that while customers remain cautious, they are returning to a more normal mode of forward-looking investment, which is positively impacting developer license sales.

Q: Can you provide more detail on the performance of different end markets, particularly automotive, medical, and defense? A: CEO Juha Varelius noted that the medical and defense industries are performing very well globally, while automotive faces challenges in Europe but is doing relatively well in Asia Pacific. He estimated that automotive now represents roughly 10-15% of revenue, down from about 20% two years ago. Medical is currently the largest segment, close to the 20% bracket, and defense is growing rapidly and is expected to surpass automotive, potentially reaching the 15-20% bracket.

Q: What are the reasons for the underperformance in the US market, and what is being done to improve it? A: CEO Juha Varelius attributed the US underperformance to internal issues, including past management changes, operational inefficiencies, and employee attrition. He stated that operational efficiency in the US is not at the same level as in EMEA and APAC. The company is on the right track to fix these issues and sees substantial room for improvement in the US business.

Q: Regarding the cost-saving program, what is the status of the change negotiations and the expected one-off costs? A: CFO Ann Zetterberg Littorin confirmed that change negotiations have been completed in Finland and the USA, with processes still ongoing in some parts of Europe (Germany, France). The company is targeting at least 20 million in cost savings, and the program is well on track. In Q2, the company incurred 3.7 million in one-off costs under employee costs and 0.6 million under other costs, with additional one-off costs expected in Q3 related to the ongoing negotiations.

Q: Can you provide a breakdown of the ARR growth and the contribution from IAR? A: CFO Ann Zetterberg Littorin reported that ARR reached 160.4 million, growing 33.8% on a rolling 12-month basis, largely due to the IAR acquisition. On a quarterly basis, ARR grew 4.5% (2.4% at comparable currencies). CEO Juha Varelius confirmed that IAR is a key driver of ARR growth but declined to provide a specific breakdown, stating the company is considering starting business unit reporting next year to provide more transparency.

Q: What is the long-term growth potential for the company's different product lines, particularly Squish and IAR? A: CEO Juha Varelius stated that the testing market (Squish) is still in its early phases with significant growth potential, envisioning it as a 100 million business. He also noted that IAR's revenue could almost double due to the subscription transition alone. He believes the current portfolio has the potential to build a 400-500 million business with very profitable operations, with further growth to come from new markets and potential acquisitions.

Q: How did the mix between one-year and three-year licenses evolve in Q2, and what does this indicate about customer sentiment? A: CEO Juha Varelius explained that the mix remained about the same, with no unusual shifts. He noted that during major shocks, customers tend to opt for one-year licenses to preserve cash flow, but as things stabilize, they return to a more normal mode. The current stability suggests customers are more confident about their future, which is a positive trend for the business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .