QPR SOFTWARE PLC           STOCK EXCHANGE RELEASE          25 October 2024, AT 9.00 AM EET

QPR Software Plc Interim Report for January-September 2024: The growth in SaaS net sales supports positive development, with profitability improving already for the eighth consecutive quarter compared to the same period last year. The most significant achievement of the third quarter was the signing of a contract with a global luxury brand.

FINANCIAL DEVELOPMENT BRIEFLY

JULY-SEPTEMBER 2024

SaaS net sales increased by +15% Software net sales decreased by -3% Net sales was 1,409 thousand euros, down -22% (July-September 2023: 1,806) due to company's discontinuation of consulting outside the core business. EBITDA was 269 thousand euros (242), an increase of +11%The operating profit was -6 thousand euros (-12), +6 thousand euros change compared to the previous periodProfit before taxes was -33 thousand euros (-37), +4 thousand euros change compared to the previous periodThe result was -33 euros (-37), +4 thousand euros change compared to the previous periodEarnings per share was -0.002 euros (-0.002) Cash flow from operations 34 thousand euros (-640), +674 thousand euros change compared to the comparison period JANUARY-SEPTEMBER 2024

SaaS net sales increased by +15% Software net sales increased by +4% Net sales was 4,651 thousand euros, down -22% (January-September 2023: 5,951) due to company's discontinuation of consulting outside the core business. EBITDA was 745 thousand euros (213), a difference of +532 thousand euros from the comparison period The operating profit was -39 thousand euros (-529), a difference +490 thousand euros from the comparison period  Profit before taxes was -107 thousand euros (-617), a difference +510 thousand euros from the comparison period The result was -107 thousand euros (-617), a difference +510 thousand euros from the comparison period Earnings/share was -0.006 euros (-0.038)  Cash flow from operations -226 thousand euros (20), a difference of -246 thousand euros from the comparison period 

OUTLOOK FOR 2024

The company monitors the development of the world's economic situation and geopolitical tensions. The slowly budding recovery of economic growth, falling interest rates and normalizing inflation will improve the financial position of customers, and investment decisions can be expected to accelerate towards the end of 2024.

Supported by the current contract base and the projected growth of SaaS (Software as a Service) net sales, QPR expects the growth of SaaS net sales to be double-digit and estimates that the entire software net sales will grow in 2024 (2023: 5,122 thousand euros).

The company expects the operating result to improve significantly in the financial year 2024. The operating result in 2023 was -813 thousand euros.

CEO REVIEW

In the third quarter, we continued to execute our strategy as planned, and the company's turnaround is progressing steadily. We have achieved our eighth consecutive quarter of improved results compared to the same period last year, indicating positive development. However, growth this time was modest, as market recovery has been slower than anticipated. Strengthening customer relationships, expanding our partner network, and acquiring new clients continue to support long-term growth. The most significant achievement of the quarter was securing a contract with a global luxury brand, which selected QPR ProcessAnalyzer to optimize its business processes, solidifying our position as a leader in process mining.

SaaS revenue grew by 15% in July-September, while software revenue decreased by 3%, mainly due to the timing of deals. Overall revenue declined because of our decision to discontinue external consulting services in Finland at the end of 2023. Our positive EBITDA, totaling EUR 269,000, increased by 11% compared to the previous year. The company's result was slightly negative, and the timing of individual deals continues to significantly impact quarterly outcomes. This quarter also saw one-off write-offs related to the relocation of our headquarters, which affected the results.

One of our most significant product development milestones was advancing our flagship product, QPR ProcessAnalyzer, into a native app on the Snowflake Marketplace. This development significantly changes how process mining software is bought and sold, offering our customers using Snowflake cloud services a fast and straightforward way to acquire software cost-effectively. Our goal is to have our product listed on the Snowflake Marketplace by the end of October.

At the core of our strategy is the development of our international partner network. In the first half of the year, we established several key partnerships in the United States, which have led to active sales efforts to attract new customers. We continue to seek new potential partners, and the EDGE 2024 Supply Chain Conference held in Nashville in September was an important part of this strategy.

The market situation in the Middle East also showed positive development in the third quarter. Our strong partner network and growing interest in our process mining solutions provide excellent opportunities for expanding our market share. Snowflake has acquired several customers in the region, which also presents us with new opportunities to expand in this market.

Our focus now turns to the final quarter of the year, where we plan to leverage our strengths and focus on securing deals effectively. Despite challenges in the business environment, we believe in our innovations and strategic partnerships that support the company's long-term growth goals.

QPR appointed Taru Mäkinen as CFO in July, and under her leadership, our financial processes are being developed to support our growth strategy. Additionally, Antti Kivalo started as the company's new Sales Director at the beginning of September.

I would like to extend my warmest thanks to our customers, partners, and investors for their trust. A special thank you also to all our employees for their hard work towards the success of our company.

Heikki Veijola

CEO

KEY FIGURES

EUR in thousands,

 unless otherwise indicatedJuly-Sept, 2024July-Sept, 2023Change,

 %Jan-Sept, 2024Jan-Sept, 2023Change,

 %Jan-Dec,

 2023        Net sales1,4091,806-224,6515,951-227,550EBITDA26924211745213249182% of net sales19.113.4 16.03.6 2.4Operating result-6-1255-39-52993-813% of net sales-0.4-0.7 -0.8-8.9 -10.8Result before tax-33-3711-107-61783-924Result for the period-33-3711-107-61783-924% of net sales-2.4-2.1 -2.3-10.4 -12.2        Earnings per share, EUR

 (basic and diluted)-0.002-0.00211-0.006-0.03884-0.055Equity per share, EUR0.0180.036-480.0190.036-480.020        Cash flow from operating

 activities34-640105-22620-1,202850Cash and cash equivalents99181-4699181-45885Net borrowings1,5131,639-81,5131,639-8934Gearing, %451.3257.275451.3257.275268.3Equity ratio, %11.013.7-2011.013.7-208.1Return on equity, %-38.6-49.722-41.8-146.471-221.5Return on investment, %-6.3-11.623-9.0-35.975-42.0                                                                                                                                  

REPORTING AND BUSINESS OPERATIONS

QPR Software Plc is a pioneer in business process optimization solutions and has positioned itself as a leading player in Digital Twin of an Organization (DTO) technology and one of the most advanced process mining software companies in the world.

QPR innovates, develops, and delivers software for analyzing, monitoring and modeling the operations of organizations. The company also offers consulting services to ensure that customers get full value from the software and associated methods.

QPR Software reports one business segment, which is Organizational Development of organizations. In addition to this, the Company reports revenue from products and services as follows: Software licenses, Renewable software licenses, Software maintenance services, Cloud services, and Consulting.

The company's reported recurring revenues consist of SaaS net sales, maintenance services, as well as revenue from renewable licenses. Licenses are sold to customers for perpetual use or for an agreed, limited period. The revenue from SaaS and maintenance services is recorded monthly as recurring revenue over the contract period.

Renewable software licenses are sold to customers as a user right with an indefinite-term contract. These contracts are automatically renewed at the end of the agreed period, usually one year, unless the agreement is terminated within the notice. Renewable license revenue is recognized at one point in time, in the beginning of the invoicing period, yet at the earliest on the delivery.

The geographical areas reported are Finland, the rest of Europe (including Turkey), and the rest of the world. Net sales are reported according to the location of the customer's headquarters. Until 2023, the company provided consulting services, predominantly to public administration, which were unrelated to its core business. In the end of 2023, the company discontinued these activities. In the future, the company will prioritize offering consulting services tailored to the software it develops, aiming to deliver maximum added value to its customers.

The company began reporting the production costs of the cloud platform within the materials and services expense category starting from 2024. The figures for the comparative period will be presented at the end of this interim report's table section, according to both reported and 2024 cost groupings.

NET SALES DEVELOPMENT

NET SALES BY PRODUCT GROUP  

EUR in thousandsJuly-Sept, 2024July-Sept, 2023Change,

% Jan-Sept, 2024Jan-Sept, 2023Change,

%Jan-Dec, 2023         Software licenses85174-51 4063836485Renewable software licenses4378-45 334453-26504Software maintenance services4304280 1,2681,27201,720SaaS67358515 2,0201,754152,371Consulting179541-67 6232,089-702,469Total1,4091,806-22 4,6515,951-227,550 NET SALES BY GEOGRAPHIC AREA

EUR in thousandsJuly-Sept, 2024July-Sept, 2023Change,

% Jan-Sept, 2024Jan-Sept, 2023Change,

%Jan-Dec, 2023         Finland555793-30 1,8812,799-333,499Europe incl. Turkey623702-11 2,0262,398-163,128Rest of the world232310-25 745754-1923Total1,4091,806-22 4,6515,951-227,550

JULY-SEPTEMBER 2024

The net sales for July to September was 1,409 thousand euros (1,806), and it decreased by 22% compared to the same period last year. The group discontinued consulting services outside our core business in Finland at the end of 2023. The proportion of recurring revenue in the total revenue increased from 56 percent to 79 percent.

SaaS net sales, which is at the core of our strategy, grew by 15%, and software net sales decreased by 3% during July-September.

The software license net sales was 85 thousand euros (174), representing a 51% decrease. The decline was due to larger individual new license deals in the comparison period, which exceeded the new license deals reported in the current period. Expansions with existing customers partially offset the lower new customer license sales. The net sales mainly consisted of additional sales through partner transactions and to existing and new customers, additional sales to existing direct customers, as well as the expansion of the partner network, which brought new commercial opportunities and customer relationships.

The net sales from renewable software licenses was 43 thousand euros (78), a decrease of 45%. This decline was primarily due to the expiration of individual customer contracts and the earlier renewal timing, partially offset by new customer acquisitions and price increases made in response to inflationary pressures.

The net sales from software maintenance services amounted to 430 thousand euros (428). The net sales was positively impacted by Middle Eastern customers transitioning to a software maintenance model, increased maintenance revenue from new license acquisitions, and winning back lost customers. Additionally, price increases to counter inflationary pressures and favorable exchange rate effects contributed to the net sales growth. However, the growth was offset by customer churn and a decline in revenue from certain individual customers.

SaaS net sales grew by 15% and amounted to 673 thousand (585). The growth was primarily driven by new customer acquisitions, the expansion of existing customer relationships, and price increases to counter inflationary pressures. On the other hand, customer churn and a decrease in revenue from individual clients had a negative impact on the overall SaaS revenue development.

Net sales from consulting was 179 thousand euros (541), a 67% decrease due to the company's discontinuation of consulting services outside its core business in Finland. During the comparison period, the company had a large customer project in Europe, but no similar project occurred in this reporting period.

The Group's net sales was 39 % (44) from Finland, 44% (39) from the rest of Europe (including Turkey) and 17 % (11) from the rest of the world.

JANUARY-SEPTEMBER 2024

The net sales January-September was 4,651 thousand euros (5,951), and it decreased by 22 % compared to the same period last year. This decline is due to the company's decision to discontinue non-core consulting services in Finland at the end of 2023. The proportion of recurring revenue of the total revenue increased from 51 percent to 71 percent.

Our SaaS net sales, which is at the core of our strategy, grew by 15%, and software net sales grew by 4% in the January-September period. The proportion of software net sales in the total net sales grew from 65 percent to 87 percent.

The net sales from software licenses was 406 thousand euros (383) and it grew by 6%. The growth was primarily driven by an increase in partner sales volume, particularly among customers in the Middle East, as well as the expansion with a global pharmaceutical company in accordance with a previous agreement. Additionally, the company achieved broader success in partner sales across multiple geographical regions.

The net sales from renewable software licenses amounted to 334 thousand euros (453), a decrease of 26%. The decline was driven by several factors, including customer churn, individual customers transitioning to a SaaS service model, and negative currency exchange effects. These factors were partially offset by new customer acquisitions and price increases implemented to counter inflationary pressure.

The net sales from software maintenance services amounted to 1,268 thousand euros (1,272). The decline in net sales was negatively impacted by customer churn, a decrease in revenue from individual customers, and, to a lesser extent, the transition of existing customers to the SaaS service model. The decline was partially offset by the expansion of cooperation with existing customers, the inclusion of Middle Eastern customers' projects under maintenance services, new customer contracts, and the previously agreed expansion with a global pharmaceutical company. Additionally, price increases to counter inflationary pressures and favorable currency exchange rate effects contributed to net sales growth.

SaaS net sales grew by 15% to 2,020 thousand euros (1,754). The growth was primarily driven by the expansion of existing customer relationships and successes in acquiring new customers. The shift of customers from licenses to the SaaS service model and, to some extent, price increases due to inflationary pressures also contributed to the growth. On the other hand, fluctuations in exchange rates and customer churn had a negative impact on the development of SaaS net sales.

Consulting revenue was 623 thousand euros (2,089), a decrease of 70%, following the company's discontinuation of consulting services outside its core business in Finland. Additionally, the company recognized revenue from fixed-price projects in the Middle East according to their to their completion status during the first half of 2023. These projects were completed in the second quarter of the same year. In the comparison period, the company had a large customer project in Europe, but there was no similar project during this reporting period.

The Group's net sales was 40% (49) from Finland, 44% (40) from the rest of Europe (including Turkey) and 16 % (11) from the rest of the world.

FINANCIAL DEVELOPMENT

JULY-SEPTEMBER 2024

The group's EBITDA for July-September was 269 thousand euros (242), an improvement of 27 thousand euros compared to the previous year. The operating profit was -6 thousand euros (-12), an increase of 6 thousand euros compared to the reference period. The season's result was -33 thousand euros (-37).

The active measures implemented by the company in 2023 to improve cost structure and enhance business profitability are already partially visible in the first half of 2024 and to be fully realized by the third quarter.

The Group's variable costs amounted to 210 thousand euros (240). The decrease in costs was mainly due to lower partner commissions, resulting from lower software license sales through partners compared to the reference period.

The company's fixed expenses amounted to 931 thousand euros (1,324), a decrease of 30% compared to the same period last year. This decrease was due to savings programs implemented in the second and final quarters of 2023, as well as reduced personnel expenses resulting from change negotiations. The full impact of the cost-saving measures materialized starting from the third quarter of 2024. The effect of these savings was partially offset by lower product development capitalizations, investments in reorganizing the company's operational activities, and a one-time write-off of 24 thousand euros related to the company's headquarters relocation.

Earnings per share were -0.002 euros (-0.002) per share.

JANUARY-SEPTEMBER 2024

The Group's EBITDA for January-September was 745 thousand euros (213), an increase of 532 thousand euros compared to the previous year. The operating result was -39 thousand euros (-529), showing an improvement of 490 thousand euros compared to the same period last year. The result for the period was -107 thousand euros, which is a significant improvement from the previous year (-612).

The active measures implemented by the company in 2023 to improve cost structure and develop business profitability are already partially visible in the first quarter of 2024 and fully realized by the third quarter.

The Group's variable costs amounted to 693 thousand euros (1,013). The decrease in expenses was primarily due to the completion of challenging fixed-price software delivery projects in the Middle East during the second quarter of 2023. This completion significantly reduced the need for external services, further lowering costs.

The company's fixed expenses amounted to 3,214 thousand euros (4,726 thousand), a decrease of 32% compared to the same period last year. This decrease was driven by cost-saving programs implemented in the second and final quarters of 2023, as well as lower personnel expenses resulting from the outcomes of change negotiations. The full impact of the cost-saving measures realized starting from the third quarter of 2024. The effect of these savings was partially offset by lower R&D capitalizations and investments required for the reorganization of the company's operational activities.

Earnings per share were EUR -0.006 (-0.038) per share.

FINANCE AND INVESTMENTS

The cash flow from operations during the review period amounted to -226 thousand euros (20). The main reason for this change compared to the comparable period was successful collection in the last quarter of 2023, particularly regarding the advanced license payments for 2024. A larger portion of the prepayments was collected in the final quarter of 2023, leading in lower cash flow from annual licenses in the first quarter of 2024. Annual billing is mostly concentrated around the end of the year, making it seasonal.

The change in working capital was affected by higher sales commissions paid to the company's personnel for 2023, as well as holiday compensation for employees who left due to the change negotiations. The negative cash flow was also due to the fact that the largest new deals occurred in a market where payment behavior is slow.

The positive cash flow from operations in the third quarter was driven by successful receivables collection and lower costs. Compared to the same period last year, a significant reduction in expenses is a key reason for the clear improvement in operational cash flow. During the comparison period, the company conducted a directed share issue, resulting in significantly higher cash flow from financing activities.

Net financial expenses amounted to 19 thousand euros (30), including exchange losses of 1 thousand euros (4).

Investments totaled 357 thousand euros (511), and those were mainly research and development investments.

The company's financing net cash flow for the period January to September was -318 thousand euros (656). The negative net cash flow was primarily due to the company reducing its loan by 500 thousand euros and having a credit limit in use. Additionally, during the comparison period, the company raised 760 thousand euros through a directed share issue.

The group's financial situation is fair. At the end of the review period, the group's cash and cash equivalents were 99 thousand euros (181). Short-term receivables were 1,290 thousand (1,468). 

Euro-denominated receivables accounted for 68%, and 68% of invoices had not yet matured. Of the total amount of short-term receivables, the share of 1-30 days overdue receivables was 16%, 30-60 days 11% and more than 60 days 5%. 

The group has a credit limit of 500,000 euros available.                                                                 

At the end of the review period, the group had a bank loan of EUR 1,000 thousand, of which 500 thousand euros was long-term. In accordance with the original financing agreement, the first installment of EUR 0.5 million was due on January 31, 2024. After this, installments of EUR 0.5 million will mature annually in January 2025 and 2026. The covenants related to the loan are based on the company's EBITDA and equity ratio. The EBITDA of the covenants is tested every six months, and the equity ratio is tested annually according to the situation on the last day of the year. The EBITDA exceeded the agreed covenant limit for the first half of the year.

The company's free cash flow, including operating and investment cash flows, and office lease costs totaled -37 thousand euros (-735) in the third quarter. The significant improvement in free cash flow is due to both lower operating expenses and enhanced receivables collection. From January to September, free cash flow was -486 thousand euros (-595). The change was influenced by shifts in the timing of operating cash flows, which were mitigated by a significant decrease in investment cash flows and lower paid office lease costs.

The equity ratio was 11%, lower than the comparison period (14%) due to a loss of -307 thousand euros in the final quarter of 2023 and a -107 thousand euros loss for the reporting period, January to September. Additionally, the new lease agreement signed in June 2024 negatively impacts the company's equity ratio, as the IFRS 16 interest effect increases the lease liability by approximately 100 thousand euros.

PRODUCT DEVELOPMENT

QPR has positioned itself as a leading player in Digital Twin of an Organization (DTO) technology. The company innovates and develops software products that analyze, measure, and model the operations of organizations. The Company develops the following software products: QPR ProcessAnalyzer, QPR EnterpriseArchitect, QPR ProcessDesigner, and QPR Metrics.

In the third quarter of the year, product development expenses amounted to 183 thousand euros (248), and 69 thousand euros (80) of development costs were capitalized on the balance sheet. Product development depreciation was recorded at 228 thousand euros (220). The amortization period for capitalized development costs is four years.

PERSONNEL

At the end of the review period, the group employed 29 people (52). The average number of personnel in April-June was 28 (60).

The average age of the personnel is 45 (47) years. Women account for 23% (23) of employees, and men for 77% (76). Of all personnel, 21% (16) work in sales and marketing, 32% (31) in consulting and customer care, 40% (42) in product development, and 7% (11) in administration.

Personnel expenses were 2,499 thousand euros (4,085), of which the share of salaries and bonuses was 2,127 thousand euros (3,406).

For incentive purposes, the company has a bonus program covering the entire personnel. The top management's short-term remuneration consists of monetary salary, fringe benefits and a possible annual bonus, mainly determined by the net sales development of the group and profit units. In addition, the company has a stock option program for key personnel.

SHARES AND SHAREHOLDER

Trading of sharesJan-Sept, 2024Jan-Sept, 2023Change,

 %Jan-Dec,

 2023     Shares traded, pcs3,407,0751,729,586973,538,455Volume, EUR1,685,250898,702881,585,931% of shares19.09.79619.8Average trading price, EUR0.490.52-50.45Average trading value per day, EUR8,9174,755886,318Treasury shares acquired during the year, pcs0000Shares and market capitalizationSept 30, 2024Sept 30, 2023Change,

 %Dec 31,

 2023     Total number of shares, pcs18,175,19218,175,192018,175,192Treasury shares, pcs256,849339,471-24339,471Book counter value, EUR0.110.11-0.11Outstanding shares, pcs17,918,34317,835,721017,835,721Number of shareholders2,1171,863141,943Closing price, EUR0.600.39540.33