Pexip Hldg Asa

Good morning and welcome to this presentation of PECSIP's fourth quarter results. My name is Trond Johandesson and I'm the CEO. Together with me here in our PECSIP studio, I have Øystein Hem, our CFO, and Osmund Fundstad, 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. First a few words about Pexip. Pexip was founded in 2011 and currently we operate in 25 countries across the globe. We are a specialist video conferencing and infrastructure company focusing on interoperability and secure and custom meetings. 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 directly compete with them. Our customers are mainly large organizations, both in the private and public sectors that have complex needs when it comes to video collaboration. The financial performance is strong and has been improving over the last quarters. Now to the highlights of the quarter. Our annual recurring revenues grew US dollars 3.5 million during the quarter and leaves us with an ARR base of US dollar 113 million out of Q4. In Q4, we had particularly strong performance in our secure and custom business area. EBITDA came in at 88 million Norwegian kroner in the quarter and cash flow ended at Norwegian kroner 21 million. Summing up our financial performance in 2024, we are happy to see that we ended up in the upper range of the outlook we presented at the beginning of the year. On the product side, we have now closed our first sale of our new private AI solution for secure meetings. And the partnership with Zoom continues to develop very well with good momentum on the Connect for Zoom product and now the possibility to buy this product through the Zoom marketplace. If we look at our Q4 performance in the context of the last 12 months, we see that the positive trend we have seen the last quarters continues. Our total ARR has grown 10% in 2024 and is at an all-time high. The underlying ARR has grown 12%. Our 12-month rolling EBITDA reached 207 million Norwegian kroner, which corresponds to an 18% EBITDA margin. And finally, our free cash flow the last 12 months was 196 million Norwegian kroner. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. PegSIP'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. PegSIP secure and custom spaces is about privately hosted video meetings that give complete privacy and data control with the desired level of customization. Pexip connected spaces is about video meeting interoperability by enabling any meeting room to connect to any meeting platform. In Pexip, we have three market beliefs based on clear trends we see that drive the demand for our solutions. One, some meetings are more private than others. Not all video meetings are the same. There is a growing need for private solutions in addition to platforms like Teams. Two, there is a growing demand for custom workflows. Video is replacing voice and in-person meetings across sectors, increasing the demand for tailored solutions. three interoperability is increasingly important as video use grows multiple platforms will coexist making seamless connectivity essential now let me elaborate on some of the things we do to drive growth in this market environment first to the belief that privacy really matters the new ai productivity tools that more and more organizations are starting to use are really great But they do also come with new challenges within compliance and privacy. Every video meeting can now become a document. And this raises new questions around data control and compliance. Who has access to the document? Where is it stored? When is it deleted? What is the document classification? And based on this, we now see an increased awareness in organizations that all video meetings are not the same and must be treated differently. In real life, you have some meetings in the cafeteria or with the door open, while other meetings require you to close the door, draw the curtains, and make sure you are 100% certain about who is listening and what is written in the minutes. The same logic should apply to video meetings, of course. Pexip elegantly solves this challenge by introducing an additional meeting platform that can be used alongside teams and in those situations you want to close the door and have a secure meeting. Our solution includes security features such as tailored user authentication, so you know who's in the meeting, clear meeting classification labeling, so you know what kind of meeting you're in, and complete control over what data is stored and where. The secure meeting can easily be booked through the Outlook calendar exactly the same way as Teams meetings. And I believe that most large organizations will have more than one video meeting solution in the future, and Pexip is very well positioned as the secure meetings alternative. Now to the second belief. Custom video solutions are growing, and AI functionality is a key requirement in many workflows. Pexip's new private AI for secure meetings was launched in November, and this solution is developed as a response to requests from various security conscious organizations that would like to use AI tools, but with complete control over where the data goes. Pexip Private AI is built on NVIDIA AI models and can be hosted in the private deployment with complete data control. Neither Pexip nor Nvidia will have access to any data. In addition, this 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, and I'm happy to announce that we now have closed our first major sale of this solution to a large healthcare provider. The third belief is that interoperability continues to be a key requirement from all users of video meetings. And it's now clear that there will be more than one meeting platform in the market going forward. And end users have a clear expectation that seamless interoperability is a must-have. With Pexip's unique technology and industry partnerships, we have a market leading position in this field. The new solutions for Zoom Rooms and Teams Rooms are unique to Pexip and are evidence of the leading position we have. One example of a very successful product in connected spaces is the new Connect for Zoom Rooms solution, where we see a very positive market response. The solution is now also available for purchase directly through the Zoom marketplace, and we have received the first orders from Zoom in January. This is a new and very efficient channel for Pexip that broadens our market reach substantially and gives Zoom a strong incentive to market the Pexip product. Now, let me leave it to Osmund to take you through a deeper sales update. Thank you, John.

Good morning, everyone. Let's go through the sales updates. So we are reporting another strong quarter for Pegsyp in Secure and Custom with a 3.9 million US dollar ARR growth to 44.9 million US dollars, which is a 24% growth year over year. And I'm excited to share some of the customer wins that made that possible. Let's review the key wins from Q4 in our key markets. Justice. In 2024, we had five new Justice wins and started 25 with another major victory. Pexip is unique within the Justice segment and is now being utilized by some of the largest and most complex Justice systems in the world. Defence. In 2024, we experienced a 70% AR growth, and we're proud to serve several of the largest and most important defence forces and alliances worldwide, who rely on Pexip's secure technology every day. And healthcare. Pexip continued to achieve success in this segment throughout 2014. Today, we support the world's largest telemedicine providers with our technology. Let's take a closer look at some of the key wins in these areas from Q4. With Ontario Ministry of Justice, they have now expanded their deployment with the PECSIP technology, replacing Cisco for both secure meetings and dedicated courtroom solutions. PECSIP stands out by offering a customized, integrated workflow experience that is unique to a justice system. The advantages of PECSIP's technology have made it the preferred solution in courtrooms and ministries of justice around the world. It's a great win for PECSIP. For defense, another major defense organization has chosen the PECSIP technology. Again, replacing Cisco for secure meetings and in-field solutions. For a defense organization, an on-premises solution is of course critical. They need complete control over the entire system, where authentication and access control are extremely important. This ensures that the right individuals are in the right meetings at the right time. And again, PECSIP's solution is second to none in this field. For AI, Tom made a very valuable point regarding our first large private AI use case with one of the world's largest healthcare organizations. But I would like to add a few additional points. Not only does these customers need to keep their AI data private, but they also have health specific jargon and abbreviations to consider. Pexip allows this customer to build and develop their own language model. completely owned and controlled by them in their own defined secure environment. This marks our first major win with our partnership with Nvidia for Pexip Private AI. For connected spaces, we deliver a flat quarter, ending the year at 66.4 million US dollars, which represent a 5% growth year over year. Pexip continues to see strong momentum with both our Microsoft and Zoom partnerships. And I'm excited to share two very large Fortune 500 customer wins that validates our competitive advantage in this space. Bakeship seems to be currently very popular within Fortune 500, and especially in bank finance, and some of you might recall our win with HSBC from Q3 with ExactlyConnect for ZoomRoom's product. The jokes aside, with these customers, also from the financial industry, we are offering the same value proposition, any to any connectivity. Connect for Zoom Rooms is very successful in the market, and Connect for Teams Rooms, which was launched just in November, we have experienced immediate success. With the increasing number of native rooms in the market, we expect the momentum to continue the growth in connected spaces. So, to summarize, Pexip had another strong quarter and a strong year in both securing custom and connected spaces. And I'm confident that the success in both areas will continue in 2025. And with that, I will hand it to Øystein for the financial details.

Thank you, Osman. Starting with the development in annual recurring revenues, we grew the ARR base with $3.5 million in Q4, and we closed the quarter at $113.1 million. With this, we're at 10% growth in ARR year on year, in line with our midterm growth ambitions, and at the top of the initial 2024 outlook. The revenue base is approximately 60% connected spaces and 40% secure and custom. The geomix is stable with 50% of revenues in Europe, 40% in the US, and remaining in Asia Pacific. Looking closer at the quarterly development in Q4, Connected Spaces and Legacy combined was pretty flat, with a slight decline of $0.4 million. Given the enterprise market we serve, we attribute this to normal quarterly variations. Last quarter, in Q3, we had a year-on-year increase in new sales in Connected Spaces of $2.6 million. This quarter, we have a year-on-year decrease of $1.8 million. Zooming out across the last year, we have an annual growth rate of 5%. The net retention rate in this quarter was similar to previous quarters at 96%. Secure and Custom, on the other hand, had a very strong quarter, growing $3.9 million, which is close to 10% growth in Q4 alone. This took the annual growth rate to 24%. The growth is a combination of both stronger new sales and stronger upsells across a number of accounts. And this led to the quarterly net retention rate being at 106%, significantly up compared to previous quarters. In terms of our P&L, revenues continue to grow. And in Q4, they were 333 million Norwegian kroner, up 17% compared to Q4 of last year. We continue to have strong revenue growth on software as a service with 23%. We also had 12% revenue growth on software. EBTA is up 29 million NOC, the 27% EBITDA margin, which is a 49% increase compared to Q4 of last year. Full year revenues grew 13%, somewhat stronger than the ARR growth, and EBTA is up 93 million NOC, improving the margin with seven percentage points to 18%. This means that for 2024 as a whole, we converted 74% of the increased revenues into increased EBTA, which is a result we're quite happy with. This result is a combination of increased revenues and improved gross margin, as well as good cost control. On the topic of costs, we did see a cost increase in Q4. The main driver behind this is the end of year bonus calculations as we finished 2024 well above our internal targets that we set at the end of 2023. This has a true up effect in Q4. We expect to be back to normal levels from Q1. This from both not having that end of year effect and from having higher internal targets reflecting the step up in performance that we have seen in the last year. We also capitalized less in Q4 than in previous quarters, which has an impact on reported costs. Looking at other OPEX, it is up 4 million NOC compared to last year, but within normal fluctuations. For 2024 as a whole, other OPEX is down 7 million NOC compared to 2023. Looking at cash flow, Q4 had a free cash flow of $21 million. We reclassified our holdings in money market funds from cash equivalents to financial investments. However, we will continue to include those holdings here as we consider them short-term cash placements in the same way as cash as we hold in the bank account. Operating cash flow is slightly down compared to Q4 of last year, as we saw a significant buildup of trade receivables, which sets us up for a good cash flow development for the first part of 2025. For Q4, we also had a positive impact of exchange rates, resulting in our cash position closing at 628 million NOC, up 105 million from the end of 2023. Taking into account the dividend that was paid in 2024, we had a net growth in cash of 217 million NOC for the year. To summarize the main points for the quarter, revenues are up 47 million NOC, or 17%, compared to Q4 of last year. And EBTA, excluding other gains and losses, is up 29 million NOC. Looking below EBTA, we did have a 3 million NOC impairment of a lease contract, as we have now completed our UK office move. The positive 20 million NOC 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 82 million NOC, up 127 million compared to last year. Looking at the full year, the picture is similar. Revenues are up 13%, and adjusted EBITDA margin is up to 18%. Profit before tax is at 164 million NOC, up 228 million year-on-year. With that, I give the word back to Tom.

Thank you, Øystein. As described earlier, we maintain a positive market outlook based on the key trends we see in our markets and the unique technology, strong market position and solid industry partnerships we have. Our current expectation is that we will end Q1 with an ARR in the range of 114 to 117 million US dollars. This is compared to the 113 we had leaving Q4. Our 2024 to 2025 targets of consistently delivering above 10% ARR growth and above 20% EBITDA margin remain in place. We reached the ARR growth target already in 2024, and we came quite close on EBITDA margin. So we are ahead of the original plan. That's why we longer term introduce now an ambition to deliver rule of 40 performance across ARR growth and EBITDA margin. Now to capital distribution. At our Q3 presentation in 2023, we introduced a dividend policy of 50 to 100% of free cash flow. For the fiscal year 2023, we paid out 0.6 kroner under this policy as ordinary dividend and an additional 0.5 kroner as an extraordinary dividend. Total dividend was then 1.1 kroner per share. For fiscal year 2024, we recommend an ordinary dividend of 2 kroner per share plus an extraordinary dividend of 0.5 kroner per share. and this brings the total dividend to 2.5 kroner per share. This is of course subject to AGM approval in April, but we do expect that it will be paid in May. We believe that even with this dividend, the company maintains a solid financial position and the ability to go after both short-term and long-term growth opportunities. finally before we go to q a the annual report will be available on march 27th the annual general meeting will be on april 25th and q1 will be presented on may 7th so i guess q a welcome back gentlemen thank you thank you

Welcome to the Q&A. We'll start as usual with the analyst questions. Øystein, I see you in the VMR.

Good morning. Thank you very much for taking my question. I wanted to follow up a bit on connected spaces. Growth there was lower this quarter. Can you give some more flavor behind that and how you see that developing into 2025?

Sure. As I touched on in the presentation as well, from our perspective, we do see that the main difference is in the new sales, which was very strong in Q3. And then some of those deals are closed in Q3, will then not close in Q4. So we attribute that more to just normal variations. I think what we see in connected spaces is that, especially with the Connect for Soon product, we've now seen two quarters in a row with very strong momentum. And also connect for MTR, so the Teams rooms. Now with also the first really major win there. So I feel in connected spaces in terms of new products, we have a very strong starting point going into 2025.

Good to hear. And also you have the partnership with Poly and given kind of the growth that you're showing here in Q4, is it safe to assume that you haven't really started to see the big benefits from that partnership yet and that is still ahead of us? Can you give some comment on that? And also, do you still think that would be a good contributor to you in terms of ARR growth in that segment?

So in connected spaces and for that matter in secure and custom, we have seen a very positive impact of the Poly partnership. So over the last one and a half years since we launched that cooperation, that's been an important contributor to our growth. And we expect that to continue into 2025, perhaps even more on secure and custom than on connected spaces going forward. But up until this point, really on both areas.

Thank you very much, and congrats on the strong results. Thank you.

Jørgen from Pareto, do you have any questions for us?

Yes, hello, guys. Thank you so much for the presentation. I didn't have time to watch the beginning, unfortunately. Quite a lot happening today. So please excuse me if some of these questions have been asked. But could you please give me some more color on the COGS development? That was down despite what you said to be higher activity. So should we see this as a meaningful long-term incentive or is this more transitory effect?

So we're super happy with the development of our operations team this year. So despite 40% year-on-year traffic growth, so the number of minutes that we produce is up 40%, the cost is stable and even slightly declined, which is to a large extent from really good just efficiency work across a number of parameters. Over time, however, we do expect to have a gross margin of around 90%, so that we do expect that revenue growth on, especially our asset service offering, will over time drive growth also on our compute cost. But so far, the operations team has proved us wrong and has been able to keep cost stable despite the strong growth in traffic.

OK, great. And then on the long-term ambition, rule of 40, could you just give a bit of flavor on, is this mostly a reflection of the fact that you expect margins to come up and that growth should stay around the 10% level, or is it more of a balanced where you expect growth also could potentially come up in two or three years?

I think it's going to be a more balanced picture where growth is of course driving profitability to a large extent with the business model we have. So we think this will be a balance and that's kind of also why I guess we introduced Rule of 40 instead of guiding specifically on the two different parameters that go in, that there is a certain flexibility also in how we operate that will make it possible to steer a bit depending on how the markets do develop. But the way it looks right now, we think the main contributor will be growth.

Great. Thanks so much. And finally, I have to ask in relation to the dividend. Of course, good to see some extraordinary dividend, but still, I have to admit that I had hoped for more. Can you say something about what you... Do you have any new... ventures or anything you wish to invest in to keep that much cash on the balance sheet? Or how should we think about that going forward?

It's an element of maintaining a solid financial position, but then also maintaining the strategic flexibility to be able to act on opportunities that do come up in the market. And clearly we operate in very interesting markets. There are lots of things happening in the whole, both in the secure area and in the connected area. So we think it would be, we think it's wise to maintain that flexibility at least for a period going forward.

Okay, thank you so much.

Thank you, Jørgen. Then we will move on to Oliver Pisani from Carnegie. Oliver, can you hear us?

Yes. Good morning. Can you hear me?

Yes, we do.

A lot happening here as well. I just wanted to ask you about this new target as well, the long-term target. What does long-term mean to you versus mid-term? Is this the three-year target, the 10-year target? How do you think about that?

To some extent, we have set out long-term to not have to be that specific in terms of when will we reach that level. I do think that with the current trajectory that we have on growth, you don't need to have a very long-term perspective in order to keep current growth rates and then reach a 30% EBTA margin. Three, four years is probably a good outlook. but also in a three four year period in in technology we don't have uh have full visibility of what's ahead but with the current output that we see we think that that's an achievable ambition for us in at least foreseeable future yeah that's very helpful and um i mean on on the ft side you continue to um to downsize a bit how do you think about the potential for that uh development to continue going into 2025

We do think that we will be quite stable on number of employees. We are strategically doing some strategic hires in places where we see that there is a need to either increase capacity or competence and we're reducing in other areas. So I think this balance will take us towards a relatively stable development in the number of employees.

All right, very clear. I think those were the key questions for me. Thank you and congrats with a good result.

Thank you. Thank you, Oliver. We've also received a few questions on email that I will cover. I think I'll give this to you, Osman. The APAC region saw a good revenue increase from 23 to 24, reversing the decline from 22 to 23. What's the outlook in APAC for the coming years?

It's good to see that APAC is coming back strong. I think in general, without having exact percentage targets, this is the level that Asia Pacific should be at. So it's good to be back. It's coming down to actually our focus in some key regions, especially Japan, the Singapore region, and then nearby countries, and then Australia, New Zealand, which have good traction, again, both in connected spaces and securing customs. So the same thing that we see globally, but again, to the level that we would like it to be at. So yes, to be continued.

And lastly, how does President Donald Trump's mandate for federal employees to return to office full-time affect your business model? Do you see any risks around it?

I think we've already reflected in our Q1 short-term forecast. We have sort of taken into account that there are certain delays taking place in the buying processes. in the public sector in the US as 2.3 million people or something like that are being asked to sort of hand in their resignations that naturally impacts certain processes. We think that's going to be short term for our business and that we will be returning to normal sort of buying processes very quickly, but reflected already in the Q1 short-term forecast that there could be certain delays there, but we currently don't see any major impact, but it's kind of just a cautionary comment from our side.

Timing may be more than anything else.

And to add some flavor to that, we believe that a return to office mandate, so being in the office, really plays to Pexip's strength. Especially in the US, a key use case for us is to bring the office room video equipment into video meeting rooms, also in the public sector. And there, having people in the office is actually essential for us to play a role. And so we believe that more people in the office is a positive contributor to Pexip's growth within the video space. Those are the questions that we have received. So with that, we'll wrap up the Q&A. Thank you for listening and see you next quarter.

Thank you.