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, I have our CFO, Øystein Hamm, and our Chief Revenue Officer, Osmund Fodstad. Together, we will take you through the highlights of the past quarter and our focus going forward. The standard disclaimers apply as usual. First, a brief overview of Pexip for potential new viewers. Pexip was founded in 2012 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 delivered as a service. Pexip has unique and established partnerships with the leading companies in our industry. You see some of them on this slide. We complement and enhance their solutions and do not generally directly compete with them. Our customers are mainly large organizations in both the private and public sector 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 past quarter. Our annual recurring revenues grew with $3.2 million during the quarter, and this leaves us with an ARR base of 122.2 million out of Q3. In the quarter, we had particularly strong performance in our secure and custom business area, and the development here is supported by increased public awareness around the need for secure and sovereign IT and communication solutions. In connected spaces, our Connect for Zoom product continues to perform well. We also see that our solutions for self-hosted interoperability in high security private clouds in the US is developing positively. In Q3, we also launched a brand new product in cooperation with Google that enables Google Meet hardware to connect to Teams meetings with excellent quality. This was not possible before. EBITDA came in at 52 million kroner in the quarter, and free cash flow came in at 29 million kroner in the quarter. If we look at our Q3 performance in the context of the last 12 months, we see that the positive trend we have seen over the past quarters continues. Our total ARR continues to grow and is at an all-time high. Year over year, the growth rate is 12%. Our 12-month rolling EBITDA reached 310 million kroner, which is a 74% improvement since Q3 last year. And this corresponds to a 25% EBITDA margin. The free cash flow the last 12 months was 303 million kroner. This is 45% higher than at the same time last year. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. Pexip has two main solution areas. Pexip secure and custom 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. First, a few words about secure and custom. This area grew 30% year over year in Q3 and now constitutes 44% of our total ARR base. Here, Pexip provides a video meeting platform that can be used exclusively or alongside, for example, Teams or Zoom in those situations when you need to close the door and have a secure meeting. Our solution includes security features such as tailored user authentication, clear meeting classification labeling, and complete control over what data is stored and where. Integrated chat is also an option. The secure meeting can easily be booked through the Outlook calendar or started through a chat session exactly the same way as with Teams meetings. 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. AI functionality is clearly in demand also for organizations that use secure meetings. Pexip works with NVIDIA to bring relevant AI features to our customers as added features in secure meetings. Previously, we have launched live captions, and now in Q3, we introduced translated live captions covering 36 languages. Next up is exporting transcripts to enable video meeting summaries and the like. This will come in our version 3 of the Pexip AI media server. A typical use case for AI-based translated live captions would be court hearings where all participants do not speak the same language. On this slide, you see an example of a satisfied customer that used translated captions in a recent court hearing in the UK. Cleveland Faulkner, director of the UK Military Court Service says, today, the UK Military Court Service used Pexip's secure meetings platform to enable remote participation in the hearing at the Bulford Military Court Center by native German speaking attendees. Through Pexip, powered by NVIDIA, all spoken content was translated in real time into German, allowing the participants to follow every part of the proceedings. I think it's a pretty good testament to the perceived value and, of course, the observed quality of this Pexip functionality. In our other business area, connected spaces, Pexip has the vision of connecting any meeting room to any meeting platform, a vision that now pretty much has become a reality. With Pexip's unique technology, interoperability focus, and industry partnerships, we have a market-leading position in this field. The new solutions for Google hardware, Zoom rooms, and Teams rooms are unique to Pexip and are evidence of the leading position that we have. In Q3, we launched a brand new connected spaces product named Pexip Connect for Google Meet Hardware. With this new product that we have co-developed with Google, all meeting rooms that have Google Meet Hardware can now connect to Teams meetings with excellent quality. This was not possible before. The market interest is strong, and we closed $250,000 in new ARR on this product during the month of October alone. This is really no big surprise to us, as Google has stated that this is the most requested feature for Google Meet hardware by their customers. Let me show you a short demonstration of how the solution works at LUX.

Your Google Meet hardware can now dial into a Teams meeting. I've already dialed in three Teams users from their Teams application on their laptop. Let's connect the Google Meet hardware as well. Notice how we get a Teams-like experience when using Pexiv Connect. At any given time, we get the Teams-like features seen here as exemplified with profile picture, speaking indicator on the ones speaking without sending video. Someone in Teams has clicked raise hand, and at the same time, we maintain most of the screen real estate for those that are sending video. If someone wants to click share from their Teams application, down here we have PowerPoint Live list. Let's go for the top one. Content is being prepared and shared in Teams, which in turn is being projected on the Google Meet hardware as well.

I hope you like it. In my humble opinion, it looks pretty good. Moving over to a slightly different use case within connected spaces where Pexip is truly unique. In the US government space, various private or government clouds are in use for different classification levels up to top secret. Interoperability solutions are required to enable the use of Microsoft Teams from meeting rooms and organizations using these various government clouds. Pexip works closely with Microsoft to deliver these critical solutions. It is worth noting that Pexip is the only technology partner enabling video devices to join Teams meetings in US government clouds. This past quarter, we initiated two different projects within high security government organizations that now will get access to Pexip's Connect products for the first time. We expect these projects to expand significantly in 2026, so stay tuned. Now, I hand it over to Osmund for a sales update.

Excellent. Thank you, Tom, and good morning, everyone. I'm proud to say that PegSIP's success in secure and custom continues with another very strong quarter, ending at $2.8 million in ARR growth to $53.4 million. It represents a 30% growth year over year. PegSIP solutions for defense and justice are yet again significant to our growth in this space. In addition, we do see an increased demand for secure collaboration and sovereign IT, especially in Europe. Adding several large customers wins and expanding opportunities for regulated, privacy-focused solutions in Q3. Let me share with you a recent win with exactly this in mind. The Spanish State Agency for Digital Administration serves as the service provider for the Spanish public sector. To enable secure and seamless communication across millions of users, Estad turned to Pexip, the only provider certified by the National Cryptological Center . PEXIT powers two distinct national platforms. Number one, citizen to government communication, a scalable platform that makes it simple and safe for Spanish citizens to connect with public services. Of course, without friction or any compromise. Second, intergovernment communication, a highly secure collaborative environment with advanced authentication and data protection. And Pexip was the only provider capable of meeting Spain's strengthened security, scalability, and user experience requirements, delivering a modern service to both citizens and public servants. Let me move to connected spaces. This is the second consecutive quarter with growth for connected spaces, ending the quarter at 68.8 million US dollars, despite the one-off reduction of a million US dollars from the change of a partner business model announced back in Q2. Pexip continues to see strong momentum with all our strategic partnerships, like Microsoft, Zoom, and Google. And as Trond said, we have already seen very good traction with the new Pexip Connect for Google product now in Q4. Pexip maintains a solid pipeline for our Connect portfolio, and we expect continued strong traction into 2026. Let me also share a major win from Q3. As the leader in universal interoperability, Pexip was selected by one of the world's largest banks to extend seamless video collaboration across its highly regulated environment. The bank wanted employees to move seamlessly between Zoom and Teams, this time from virtual desktops or so-called thin clients. Thousands of virtual desktops are enabled with Pexip Connect for Zoom, allowing flexible video communication between the platforms, and at the same time maintaining strict compliance and data protection standards, which is, of course, very important in the financial market. This marks PEX's first interop for PC clients, demonstrating the company's ability to innovate in new areas for interoperability. And with that, I'm going to hand it over to Øystein for the financial details.

Thank you, Osmond. For annual recurring revenue, as stated, we grew 12% overall, driven by strong growth in secure and custom of 30%. Connected Spaces is flat year-on-year. However, it's seen modest growth for the past two quarters. The growth came from customers in government, healthcare, and defense, in terms of geographies, with good contributions from both Americas and Europe. In terms of net retention and new sales, connected spaces saw an increase of $400,000, and it's the second consecutive quarter with a slight growth. This is despite the large downsell we mentioned in the Q2 presentation, which impacts the net retention for this quarter, and it shows a positive underlying momentum within connected spaces. Most of the growth, as Osman mentioned, continues to come from secure and custom, which had new sales of 1.6 million and existing customers growing with 1.2 million. In terms of the P&L, revenues grew 16% year-on-year in Q3, helped by strong software sales and the ARR growth of 12%. EBITDA came in at 20% for the quarter, up 12 percentage points year-on-year. On a 12-month rolling basis, revenues grew with 15%, and EBITDA is now at 25% if you look on a full-year basis. For the quarter, Pexip increased its EBITDA with 34 million NOC compared to the revenue growth of 37 million. So we're continuing to leverage the scale benefits of our software business, enabling us to grow without adding significant costs. In terms of costs, they were flat overall compared to Q3 of last year. Cash-based salary expenses are up 1.5 million, share-based compensation is down 5 million, and other OPEX is up 4 million compared to Q3 of last year. Other OPEX was lower in Q3 of last year, while this year it came in very much in line with the past couple of quarters. Overall, a fairly consistent development and in line with previous quarters. Looking at cash flow, Q3 had 44 million NOC in operating cash flow, which is up 23 million year-on-year. Investments and leases are stable year-on-year, and in total, we delivered 29 million NOC in free cash flow. We also completed our buyback program in Q3, leading our cash and money market fund position in total to close site below Q2, and is now at 526 million Norwegian kroner. To summarize, revenues are up 37 million, gross profit is up 35, and adjusted EBITDA is up 34 million Norwegian kroner, and is now at 20% margin. Depreciation is slightly down year on year, while net financials is down due to currency fluctuations this quarter going against us. This resulted in a profit before tax of 33 million NOK for the quarter. With that, I hand it back to Tor.

Now, a few words about our outlook. 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 that we have. Our expectation going forward is that we will end Q4 with an ARR in the range of 124 to 127 million dollars compared to the 122 we had leaving Q3. This expectation is a reflection of our belief that the positive trend we have seen over the past quarters is expected to continue. Our near-term targets of consistently delivering above 10% ARR growth and above 20% EBITDA margin have been reached over the last quarters. Longer term, we have an ambition to deliver above Rule of 40 performance across ARR growth and EBITDA margin. Last 12 months, we are at 37 on this parameter. Finally, before we go to Q&A, our Q4 presentation will be given on February 12th next year. Now, Q&A. And I welcome my friends back in the studio.

Thank you, Trond. We'll start with a question from the analysts that are with us live. Jørgen Weidman from Pareto. Do you have any questions for us?

Hello, thanks so much for taking my questions. So first of all, could I ask the US shutdown? Have you seen any effects on that? Or do you expect any effects of that going forward?

We still have strong momentum in both federal and public sector in the US. However, it's hard to really predict what's going on on the US side. So far, we haven't seen any impact on the opportunities we are working on, but it's hard to predict what's going on on the US side on a daily basis.

Yeah, I think the uncertainty is higher than it has been. Some of the projects we are working on are kind of classified as sort of a kind of importance level that enables sort of those organizations to keep on working and those employees to operate as normal. But of course, there might be situations where we see delays, which I think will be the actual effect, not actually business going away, but orders being delayed if there's any effect at all. We have to just wait and see on this, I guess.

Okay, that's fair. And then considering 2026 is getting closer, could you remind us what you did on pricing this year and if you see any possibilities of increasing prices into 2026?

Yeah, so I think on average, there are some product variations, but on average, we increased our prices with 5% in 2025 and also in 2024. And I think that's a fairly fair estimate for 2026 as well, although that decision is still ahead of us.

Okay, that's fair. And a final question from me. It seems like the interest in secure and custom is still quite high, but could you... Give us a little color on what you see on sales compared to leads generation as of right now.

We normally don't comment on order intake. Of course, we measure our pipeline. And I think what we have said around secure and custom is that the growth momentum we have seen, we had 27% over the last time we reported our year-over-year growth of 27%. This time it was 30%. It's definitely a level that we think is achievable going forward, whether it's going to be a bit higher. I mean, let's work to make that happen. But there's at least no kind of indication that the growth here will slow down.

Okay, that's very clear. Thank you so much.

Thanks a lot, Jørgen. Then we'll move on to Kristoffer Björnsson from D&B Carnegie. Welcome, Kristoffer.

Thanks. Good morning. Can you hear me? Yes, we can. Yeah, I know this is a video focused company, but I'm traveling, so I can't really do video today, unfortunately. But yeah, thanks anyways. First of all, on the revenues, it was pretty strong. We're thinking maybe there's going to be some currency headwinds and so on. So just can you maybe unpack a bit what role that strong revenue development was really? I think you mentioned in the report that there were some renewables and some license deals and so on to maybe unpack a bit the strength of the revenues?

Yeah, happy to. I think we benefited in terms of revenue recognition this quarter by most of the ARR growth coming on software as opposed to software as a service, which accelerates revenue recognition somewhat. That's the main driver for it. Then we are, as you say, starting to face a bit more difficult comparisons, given that we invoice mostly in U.S. dollars, and the currency rate is a bit stronger compared to the innovation corner now than it was a year ago. But so far, we've been able to offset that effect by our ARR growth.

all right thank you that's helpful um and then on the on the the you mentioned you've won this bank which was i think you said it's your first use the first use case for for connected spaces or interrupts on desktop right correct correct so that's super exciting can you help us understand a bit better is this typically something that the customer would do when they have like a new new office setting up from greenfield or is this also kind of relevant for for retrofitting of existing office facilities and just how much does this expand your time essentially because I don't know how many more webcams there are in offices than there are meeting rooms, but this sounds pretty exciting.

Absolutely. The most common use case for PC-to-PC video calls is to download another application. If you're using Zoom in your normal work life, if you're invited to a Teams call, you will download the Teams application to do that specific call. That's what we mostly see and what I think will be the most common Zorro workflow going forward. For this bank in particular, their virtual desktop environment made it a lot easier to just have one application than two. Also, the fact that by using one application, they can make sure that they're fully compliant with all types of compliance recordings across all calls, not just the ones that are on their platform. We're super excited about the opportunity and having the first project live out there. But it remains to see to what extent will this be a common adoption. I think outside of regulated industries, having two apps will still be the most common workflow. But excited to see how, if we can get more traction on this, also outside of this one banking.

If I can expand a bit on this, this is already an existing customer on the room side, now expanding to the desktop and then to the clients. And then again, of course, the main point here is the regulation, being able to do all the recordings and what they have with the compliance around that. And that, I do think, is one thing is bank and finance, but we could see that in different industries also. But again, this is our first win, a large win with this product, and we're excited about the future for this interrupt solution as well.

It clearly speaks to the flexibility of the technology and the way we can work with various types of endpoints and connection points into video and be that interoperability expert, even when we're talking beyond the specific room systems. That's been the kind of the core business for a long time.

Yeah, definitely. It's super exciting. And then just finally, on on that headwind to the arr and connect the spaces from that shift from fixed to more variable oriented deal structure or pricing structure can you just give an update on on like that one million that end up being like a pure one million with no gain from signing new customers on that new deal or just and then how do you expect that to develop into the q4

We have had some miners, we've reclaimed a small portion of that in Q3, and then I expect to reclaim the rest of that throughout the contract period ahead of us. I would say progressing as planned.

Sorry to be difficult, but when is it base case to be reclaimed? What's the contract period? Remind me.

That over the next, I would say, one to two years is my best estimate. But that depends to what extent, when those new opportunities close with that new partner or with that partner. All right. Thanks a lot. Thank you. Thank you. Then moving on to Markus Heiberg from SAP. Welcome, Markus.

Thank you. So first one, just on the timing of revenue recognition, what do you expect for Q4 relative to ARR to help our modeling going forward?

Q4 is usually a fairly strong software quarter. I expect that this year as well. My main assumption will be that revenues will grow roughly in line with ARR. Then I would factor in that we are facing a bit more headwinds with regards to the currency, which was extraordinarily good for us in Q4 of last year, whereas this year it will be more normal.

On connected spaces, can you elaborate on the new revenues that you have? How much of that is from new service attached rooms and how do you expect that to develop over the coming quarters? Do you expect that pace to increase now with the Google and secondly, of course, Microsoft Teams for Android rooms that are coming? Maybe you can give some More flavor there.

So native rooms have increased around a million US dollars quarter-on-quarter, this quarter as well, which has been a fairly consistent pace over the past four quarters. Then I think it's fair to expect some acceleration of that now with the Connect for Google Meet. And then we're hopeful that with the introduction of Android, that we will also get the bigger contribution from Teams Rooms. So I do think that native rooms, if you look a year or two ahead, will be a significant part of the Connected Spaces revenues overall.

Very clear.

Thank you. And the final one for me is on the employee side. It's flat quarter over quarter. And how should we think about that now over the coming quarters?

We do see the scaling effects that was mentioned during the presentation that even with a relatively stable cost base, we're able to grow the business. We are planning for a slight increase in the number of employees. We've talked about maybe around 300 being a reasonable figure. Don't expect any major shifts or dramatic increases but kind of a stable increase to basically mainly I guess on the to build capacity on the engineering side as we have new products and new solutions in the market and to have sort of enough sales people in the parts of or in the geographies where we have significant traction for example in the US that's great that's all for me thank you

Thank you, Markus. Then moving on to Halvor Dybdal from Arctic. Can you hear us, Halvor?

Yes. Can you hear me?

Yes, we can.

Perfect. So just a question regarding the ARR guidance for Q4. The delta ARR seems to be quite in line with Q3, which is a seasonally slower quarter. So how should we think going into Q4? And do you have any large contracts announced in Q3 that we sort of have to extrapolate or just some color on that?

I think the Q3 was a reasonably good, normal quarter. Nothing major that drove it in the direction where it ended. Across the board, pretty solid. Looking at Q4, the guiding that, and as I said in the presentation, the guiding that we're giving for Q4 is meant to send a signal that we expect the positive trend that we have seen over the last quarters to continue. It's not meant to give you kind of a decimal figure to put into your spreadsheet. It's meant to indicate that we sort of see the trends that we have seen over the last quarters will continue also in the fourth quarter and hopefully beyond.

To add some color to that, I think we did 3.6 in Q4 of last year. From our starting points, we have a range now of 2 to 5. Our expectation is that Q4 will be a good quarter in line with the previous Q4s.

Great. Thank you.

Lovely. Then we move on to Lisa Vjemur from Sparbank and Markets.

Hi. Thanks for taking my question. First, I wonder what is the current progress on the teams for Android rollout?

January? Again, I think we said that in the previous earnings call as well. We're dependent on the markets of putting this out in the market. We are on track, and we know they are saying Q1 2026. We also know that they are talking to some of their largest customers about this coming, so we're very optimistic about rolling that out in Q1, but it sits with Microsoft for now.

I think the official roadmap says say January or is it say Q1? Kind of. We have heard rumors of January. Yes.

Okay, thanks. And what do you see in ARR potential for the Microsoft rollout of teams for the US government potential? And when do you see potential deployment from this contract?

I think that's an excellent question. The potential here could be significant. Our current projects are in the hundreds and hundreds of thousands of dollars they are. We see potential for going into the millions just with a couple of projects that we're currently working on. There could be potential beyond that. The uniqueness of Pexip's technology and the market position we have in the cooperation with Microsoft is really helping us in this area. But to give you a more exact answer than that is a bit difficult. We're kind of working to understand which organizations, which clouds, which deployment situations will be relevant for us here going forward.

It's an excellent opportunity to also add some more color. Working with these large communities, especially on the federal side in the U.S., it's long sales cycles. That's one thing. What's going on in the U.S. market currently is kind of hard to predict. And you typically go through proof of concepts, et cetera, et cetera, before you basically get the entire deployment. But we are in a very, very good place, but also hard to say when will it happen and the exact timing on it, which is our couple of components that we are not able to control, basically.

But it's clearly one of the reasons why we are feeling good about the development in secure and custom going forward. Yes.

Okay. Thank you.

Thank you. That concludes our Q&A session. Thanks for the attention. Thank you.

Thank you.