Even though you asked for views from others, being Snowflake-native isn’t just empty rhetoric. There are advantages if the solution fits the company’s IT architecture and the security policy allows storing business-critical data in an external provider’s data centers.
I’m not familiar with Snowflake’s server locations and encryption solutions (does the customer hold the key?), but in the public sector, storing data in the cloud—not to mention in a foreign location—is not a slam dunk or necessarily possible at all. Legal departments would rather err on the side of caution when it comes to “blocked/allowed” interpretations. Been there, done that.
So, I don’t see Snowflake as a decisive competitive advantage; it’s perhaps more like an “Intel inside” sticker on a PC box, which as a feature ultimately benefits only a portion of the (potential) customer base.
The agreement signed with Saudi Arabia’s Tourism Development Fund (TDF) concerns the QPR Metrics software. The size of the deal was not disclosed, but the fact that it was announced via a press release suggests a relatively small deal. In any case, successes on the sales front are positive for the company, and in line with the comments in the Q4 report, the positive momentum in the Middle East now also seems to be turning into sales.
Here are Atte’s and Roni’s comments on QPR’s new contract.
The deal includes QPR’s ProcessAnalyzer software. The size of the deal was not disclosed, but its announcement via a press release suggests a relatively small deal. In any case, successes on the sales front are positive for the company, and especially the buyer replacing a competitor’s product with QPR’s solution serves as an encouraging sign of the competitiveness of the company’s product.
I’ve been mulling over investing in QPR, but at least the current price is slowing down my decision-making. In absolute terms, the company is just a 10-million-euro “shop” (kioski), but expectations have certainly been baked into it already. Management’s comments have been bold regarding deals, and some of these have materialized. The deals have been small, but they certainly provide some support for future revenue growth.
The organization has been trimmed down to a fairly small package, which was of course necessary, and now it’s even turning a profit, but for how long will the size of this organization be sufficient to grow revenue? Do @Atte_Riikola or @Roni_Peuranheimo have any thoughts on what level of revenue could be achieved with the current organization?
And could this even be a bottleneck for revenue growth? At least there were no job openings when I checked the website.
It also comes to mind how management takes care of current employees and their well-being? To what extent do you see the organization of a new share issue as a risk? I imagine that if growth is found in the market and it is pursued, the need for additional funding will be high in my view. The cash position seemed to be at a mediocre level in Q4 23.
Edit. Addition: the table below. This isn’t exactly shocking, but of course, one must look closely at which direction this moves because of the company’s small size, and the cash position is critical.
Perhaps the scale of the organization and revenue growth can be outlined through QPR’s financial targets. The target for 2024–2027 is an average annual SaaS revenue growth of 20% and “sustainable operating profit.” This level of profitability has not been defined in detail, but it does point toward some level of positive operating profit. Our interpretation is that it could roughly mean an operating profit of around 5–10%, and we currently forecast the operating profit to rise to the 9% level toward the end of that strategy period.
This year, they will likely still manage with the current organization, but if the growth outlook begins to pick up, I would expect QPR to start making growth-supporting recruitments by next year at the latest. Of course, if a significant amount of software could be sold through the partner channel, the need for recruitment could be more limited in the short term. However, supporting partners always requires resources as well. Overall, I believe QPR will prioritize growth over profitability in the medium term, as the company is still very small and there should be potential for growth in rapidly expanding markets. Therefore, they are unlikely to push profitability significantly into double digits; instead, the cash flows generated by growth will be reinvested back into the business, provided that growth picks up in the coming years.
Although QPR’s financial position improved toward the end of last year, the leeway provided by the balance sheet for implementing the growth strategy is limited. Here are the comments regarding the balance sheet from the Q4 update:
If growth were to stall and profitability as well as cash flow turned negative, raising additional funding would be necessary at some point. I also believe it is possible that the balance sheet will be strengthened to accelerate growth if the market situation suggests that growth opportunities are opening up. From a strategy execution perspective, this would be very welcome, as growth investments wouldn’t have to be made quite so much with their backs against the wall. The downside, of course, would be dilution of the share base, as new capital would almost inevitably have to be equity.
A press release from QPR about new partners just before the results:
Solution BI was already mentioned in the Q4 report, but the other two are completely new names: “In accordance with its strategy, QPR aims to expand into the North American market, utilizing a partner network to be built there. An important step in this endeavor is the signing of a significant partnership agreement with Solution BI on January 16, 2024. The agreement includes resale rights for QPR ProcessAnalyzer in the United States, Canada, and Mexico. The company also collaborates with Solution BI in the Middle East region.”
Regarding that Business Finland funding, the following was also mentioned in the Q4 report: “Additionally, on January 30, 2024, Business Finland approved QPR Software Plc’s Market Explorer funding, which is used to explore business opportunities and map markets in North America. The granted support covers 50% of the incurred costs, with a maximum limit of 39,995 euros. This financial support is intended to facilitate the company’s mapping of new markets and promote the conditions for the internationalization of the business.”
I’ll have to ask Heikki in more detail on Friday how the development of the partner channel has progressed in the early part of the year, and what kind of sales expectations have been placed on the shoulders of the now-announced partners.
It would be nice to know more about the number of customers to get some sort of idea of the average revenue per customer.
The partner network continues to grow, which can probably be seen as a good sign of interest in the company’s products.
"PMB closed their first QPR deal swiftly after initiating the partnership. “This achievement underscores the strength of collaboration and the alignment of objectives. It sets a promising precedent for future endeavors, indicating a proactive approach and a commitment to mutual success”, says Lehto. "
QPR delivered a Q1 report that was well in line with our expectations. SaaS growth (+15%) was better than our cautious 10% forecast for the start of the year, but in line with our full-year forecast of 15% growth. The profitability turnaround is proceeding on track, which is positive given the company’s still tight financial position. On the sales front, there are also signs of picking up with new deals and partners. Here are the initial comments:
We will start recording the Q1 interview with Heikki at ten, so that will also be available on InderesTV in the coming hours!
Is the financial situation really as bad as it might at first glance appear? Based on the report, the combined EBITDA for this and next year is 2.5 million. QPR has 1.0 million in net interest-bearing debt, and financing costs are practically negligible. Cash flow from investments over the past year has been 0.45 million, so one could estimate investments of 0.9 million over two years.
These could be roughly estimated to represent the cash flows for the next two years, i.e.
+2.5 EBITDA
-1.0 Net Debt
-0.9 Investments
Total
+0.6 Cash flow
After two years, the company could be net debt-free, which would also align with the debt repayment schedule. This can be considered a very good situation and perhaps not even necessarily a goal in itself. From an equity perspective, the situation looks worse, of course, but that is mainly due to the small amount of equity.
In Inderes’ DCF calculation, annual gross investments are 1.0-1.2 million, which clearly exceeds the current level of investment. This discrepancy has a significant impact on the equity DCF value of 0.43 per share, which could roughly double if investments remain low.
It is true that if investments were to remain at the current level, there would still be upside in the DCF value. Our view is that the current level could be described as a “low flame,” which is not sustainable in the long run if growth is to be accelerated and maintained over the medium term. Generally, in competitive international software markets, growth requires continuous and increasing investments in product development to keep up with the pace of development. However, in this update, we adjusted investments down a notch for the coming years, which is also reflected in the DCF value.
QPR for the second year in a row in the Visionary category in Gartner’s Magic Quadrant:
Here is a summary of the Quadrant, which also well reflects the companies found in QPR’s competitive landscape:
Below are a few more highlights from the report. First, Gartner’s comments on QPR’s solution and the “Leader trio”. The competitors’ confusing and partly high pricing are criticized. On the other hand, the solutions and resources of the large competitors are generally much more extensive than QPR’s, which is naturally a clear advantage for them.
Celonis:
SAP Signavio:
Software AG:
Then Gartner’s views on market size and drivers. It is indeed incredible that Celonis still has a market share of about 50%, so their growth also largely drives the growth rate of the entire market.
I couldn’t immediately find any information regarding profitability. On Forbes’ interesting The Cloud 100 2023 (forbes.com) list, Celonis is ranked 17th, and the number of employees is reported to be 3,000. With an average annual cost of 80k, this would result in a cost of 240 million, so one could assume the company is currently operating profitably.
Regarding the American conquest, it is quite meaningful to take a brief look at Snowflake’s development and the potential there. Quarterly results can be found at https://investors.snowflake.com/financials/quarterly-results/default.aspx. Revenue has grown steadily for at least the last couple of years.
The total number of customers seems to have grown more slowly than revenue. There are 485 large customers generating more than a million in revenue, and their number has grown by 30% year-on-year. 80% of customers come from the Americas, 15% from Europe, and 5% from Asia. There should be growth potential for a long time to come, which also increases QPR’s chances of success.
Guidance shows that growth will continue, operating profitability is positive, and it generates positive cash flow. The business is on a quite solid foundation.
RPA is quite often put in the same category as process mining, even though it is actually quite different in practice. Both, of course, are used to make processes more efficient. UiPath https://ir.uipath.com/ released its interim report, which looks quite good at least in terms of the top line. Recurring revenue has been growing steadily during the period shown.
There is a nice amount of large accounts, and the numbers are growing. The total number of customers is 10,800.
Profitability is in the red, at least for now. Sales and marketing costs are more than half of the revenue. Significant sums are also being sunk into research and development.
The stock has slid -80% from its 2021 peak and is now down an additional -29% in the aftermarket. Despite the drop, the stock can’t really be considered particularly cheap, as the P/B was 5.169 at the $18.3 closing price.
