Pexip Hldg Asa

Good morning and welcome to this presentation of Pexip's third quarter results. My name is Trond Johansson and I'm the CEO. Together with me here at Lysaker today, I have Øystein Hem, our CFO, and Osmund Fodstad, our Chief Revenue Officer. Together, we will take you through the highlights of the past quarter and what we are focusing on going forward. The standard disclaimers apply as usual. Before going into the details of the third quarter, let me give you an overview of what Pexip is about. We were founded in 2011 and currently we operate with 286 employees located in 25 countries across the globe. We are a specialist video conferencing player focusing on interoperability and secure and custom spaces. We do software only delivered as a software or as a service. Pexip has unique and established partnerships with the leading companies in our industry. We complement and enhance their solutions and do not generally compete with them. Our customers are mainly large organizations, both in the public sector and private sector, that have complex needs when it comes to video collaboration. Now to the highlights of the quarter. Our annual recurring revenues grew with 2.4 million US dollars during the quarter and leaves us with an ARR base of $109.5 million leaving Q3. Both business areas have double digit growth year over year and contributed well in the quarter. EBITDA came in at 18.1 million Norwegian kroner in the quarter, This includes a few notable items around share option costs and revenue mix that has impacted EBITDA negatively with around 15 million in the quarter. Adjusted for this, we are at 33 million in EBITDA. Cash flow ended at 7.8 million in the quarter, an improvement of 18 million compared to Q3 last year. Our newly launched product in connected spaces, Connect for Zoom Rooms, is off to a very good start in the market. And we have also officially launched our partnership with RingCentral in Q3, enabling RingCentral Rooms to join Teams meetings with excellent quality. If we look at our Q3 performance in the context of the last 12 months, we see that the positive trend we have seen the last quarters continues. Our ARR has grown 10% since the end of Q3 last year and is at an all-time high. The underlying ARR has grown 12%. Our 12-month rolling EBITDA reached 178 million, which corresponds to a 17% EBITDA margin. And finally, our free cash flow the last 12 months was 209 million Norwegian kroner, a 140 million Norwegian kroner improvement since Q3 last year. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. Let's talk some more about that. Pexip's mission is to make seamless video communication available to all organizations regardless of technology platforms and security requirements. We have two main solution areas, Pexip connected spaces and Pexip secure and custom spaces. Let me say a few words about the market in both these areas. First, connected spaces. Our goal at TechSIP is to make sure that when people use meeting rooms, they don't have to think about what kind of equipment is in the room or what type of video meeting they are joining. We want everything to work just seamlessly, and we call this any room to any meeting. To make this happen, we work closely with the other industry players to create solid, reliable, and certified solutions. We continue to make good progress on this. And just this week, Microsoft launched their one-touch join support for Microsoft Teams Rooms when using Pexip, making it a lot easier for customers to join Zoom and other meeting platforms when using their MTRs with a high-quality experience. RingCentral Rooms are now also enabled to join Teams meetings. Pexip has a strong market position in an attractive and growing connected spaces market. Let me elaborate. The total available market for software solutions used in video room systems is around $3 billion, with an annual growth rate of around 15%. Pexip has a unique offering in the market with a superior user experience, coverage of all relevant use cases, and the flexibility and hosting that only Pexip provides. Our established industry partnerships form the basis for the strong market position, and new opportunities continuously emerge from these close relationships. Continuing a bit on the partnership topic, our recent recognition as Independent Software Vendor of the Year and Azure Marketplace Global Partner Finalist are tangible signs of how we are appreciated by Microsoft as a key partner. Now, let me move over to our second business area, secure and custom solutions. In the secure meetings area, we continue to see that the concept of having more than one video meeting platform is increasingly gaining momentum in the market. The awareness around how different meetings may require different solutions is growing. As a consequence of this, organizations are looking to complement their primary cloud-based video meeting platform with a secure meeting solution that has tailored user authentication, clear meeting classification, labeling, and where complete control over data is achieved. Pexip Private AI for secure meetings is available for purchase now in November. This solution is developed as a response to requests from very security conscious organizations that would like to use AI tools, but with complete control over where the data goes. The solution is built on NVIDIA AI models and can be hosted in a private deployment with complete data control. Neither Pexip nor NVIDIA will have any access to any data. In addition, the solution allows for customer specific language libraries for more accurate results. The first use case is around captioning, or speech-to-text, and translated speech-to-text. Next up is speech-to-speech translation. With that, let me leave it to Osmund to give us a sales update.

Thank you, Trond. Good morning, everyone. Let's look at the sales updates. Happy to announce another fantastic quarter with great wins for Pexip in Q3. For connected spaces, we delivered a $1.5 million ARR growth to $66.8 million. That is an 11% growth year over year. Pexip enjoy continued growth in this space because of these main reasons. Number one, Pexip have a unique technology and are being recognized as the leader in this space with far better user experience than any competitor. We see a strong uptake with our FedRAMP solution, which is a sovereign cloud in the US for federal and public sector, but also started to see traction from large enterprises working within the defense industry and the public sector who wants the same experience and security. And lastly, the strategic partnerships, especially with Microsoft, HP, Poly, and now also with Zoom, where we win Fortune 500 logos together. Let's have a closer look at one of the Q3 wins within connected spaces. HSBC is another Fortune 500 customer into the Pexip family. This is a flagship customer for Zoom and for Microsoft. And the fact that the three of us are cooperating for setting the new standard for interop is exciting and a huge improvement for these users of video meetings. So how does actually Pixiv win such a logo? These customers have multiple video meetings across different technologies and especially Zoom rooms to Microsoft Teams meetings. Pegsip's technology resolves all those use cases for the customers in an elegant way. Pegsip is significantly improving the user experience for their employees, both with how you join the meeting, but it also enhances the meeting experience in itself. It basically gives them a better return on their soon investment as the PECSIP solution always works across any technology. And in fact, for HSBC, reducing the support load for IT was a strong additional argument to deploy PECSIP. For the use case for HSBC is a very familiar case for many of the large enterprises. Pixip are of course excited about the HSBC win in itself, as well as the fast growing pipeline we have seen for Connect for Zoom rooms. Going forward, the new product Connect for Microsoft Teams Rooms that were released this week expands further our offering in connected spaces and makes Pexip expect continued growth in this space. Let's now have a look at the secure and custom. We are reporting another strong quarter for Pexip in Secure and Custom with a 1.3 million US dollar AR growth to 41 million US dollars. It's a 15% growth year over year. Main reasons for our continued growth in this space is number one, the need for secure video meetings where Pexip's technology is second to none. That continues to be the main growth driver. Second, the Pexip technology gives any organization the full flexibility of their definition of secure, as well as their preferred deployment methods, on-premise, air-gapped, or self-hosted, while maintaining full control of their data. Pexip is the only one offering this flexibility in secure spaces. And lastly, we see increased usage and upsell within our install base, as well as sales to new secure environments, like the first virtual court sale outside of Europe. Let's also have a closer look at one of the Q3 wins for secure spaces. Pexi, one of the largest naval defense forces in Europe. Naturally, I cannot name the customer itself. Why does Pexip win a customer like this and what is their use case? Number one, Pexip has the leading technology for secure video meetings. Pexip offers advanced security features, ensuring that the right person is in the right meeting at the right time. Pexip offers an attribute-based access control, so-called ABAC, allowing the customer to admit or deny participants based on authentication and privileges set via an external policy. This is extremely important in the defense segment. And lastly, PIX's unique integration capabilities increases the security of the video meeting in itself and ensures fast collaboration whilst maintaining the highest threshold of data security across multiple domains. PIX is proud to be chosen as a secure video meeting provider to these kind of customers and continue to see growth both in the defense sector and of course in secure spaces going forward. And with that, I will hand it over to Øystein for the financial update. Øystein.

Thank you, Osman. Starting off with annual recurring revenues, we grew the ARR base with $2.4 million in Q3, and we closed the quarter at $109.5 million. With this, we are at 10% growth in ARR year on year, in line with our growth ambitions for 2025 and onwards. In terms of products, this was a very strong quarter for software asset service. As a service, ARR grew 3.3 million, while software ARR is down 0.8 million. In terms of geo distribution, all three regions had growth this quarter, with Americas and Europe contributing the most. Separating the development in the two business areas, Connected Spaces and Legacy combined grew $1.2 million, with Connected Spaces increasing $1.5 million and Legacy decreasing with $0.3 million. The dynamics is similar to previous quarters, with growth coming from strong new sales compensating for net retention below 100%. Secure and Custom grew $1.3 million, driven by new customers. On existing customers, several good upsells compensated for the churn on other accounts, leading to a net retention rate of 100%. Moving over to the P&L. Revenues continued to grow, and in Q3, they were 228 million NOC, up 6%. This is a combination of 22% growth on software as a service and a reduction of 13% on software due to the shift in the ARR mix of the two products. Gross margins increased with 15 million NOC, and EBITDA increased with 8 million NOC. On a 12-month basis, revenues are up 11%, in line with the ARR growth, and we're now at 17% adjusted EBITDA margin, moving towards our 2025 ambition of 20% or higher margins. There are two notable items that impacted Q3 EBITDA that are out of the order. One is an 8 million NOC increase in share option costs, resulting from increased employer tax accruals in the quarter. The share price increased almost 10 NOC in the quarter, and this increased the accrued gains in the company's share option program. The other is a reduction in software revenues, resulting from a shift in the mix between software and software as a service. As around 80% of the revenues from a software contract is recognized at delivery, a shift towards as a service means that revenue and EBITDA benefit is delayed. It's important to note that the underlying cash flow profile is the same on software and software as a service, and the vast majority of both areas is based on prepaid one-year contracts. However, with software as a service, the immediate benefit is a working capital improvement, while for software, you will see the impact on the P&L the quarter the contract is delivered. In Q3, a key driver was good take up of our FedRAMP service in the US, which has seen several existing software customers move towards Pexip secure government cloud. Even with those two items, we continue to convert revenue growth into improved profits at a strong pace. So far this year, we have increased revenues with 78 million NOC and gross profits with 70 million. EBITDA is up 64 million in the same period, which is 83% of the revenue growth. This continues to be the core of our financial strategy, aiming at 10% or higher revenue growth and combining this with good cost control to generate growth in earnings. On operating costs, operational improvements have offset the impact of inflation, leading to a stable cost base compared to Q3 of last year. We have a slightly lower headcount than last year, leading to a reduction in fixed salary. However, we also have higher variable salary cost from higher target achievement compared to last year. Both salary expenses and other OPEX are slightly down compared to last year, while share option costs are up. Looking at cash flow, Q3 saw an improvement of 18 million NOC compared to Q3 of last year. And for Q3, approximately 8 million NOC in free cash flow in the quarter. The overall improvement is a result of higher profits. It's also worth noting that investment cash flow is 8 million higher than in Q3 of last year. This is mainly due to delayed R&D tax credits from the Norwegian government. We expect those at the same level as last year, and that 5 million NOK will come in during Q4. To summarize the main points, revenues are up 14 million NOK, or 6%, and EBITDA, excluding other gains and losses, are up 8 million NOK. Depreciation is down $8 million as historic investments have been fully depreciated. The positive $13 million knock on net financials is from a combination of exchange gains as well as received interest on cash holdings. The net result is a profit before tax of $9 million knock, up $34 million knock compared to last year. With that, I will give the word back to Trond for our outlook and targets.