Pexip Hldg Asa

Good morning, and welcome to this presentation of PECSIP's first quarter results. My name is Trond Johansson, and I'm the CEO. Together with me here at Lysakir, I have Øystein Hamm, our CFO, and Osmund Fodsla, our Chief Revenue Officer. Together, we will take you through the highlights of the quarter and our current focus. The standard disclaimers apply as usual. First, a brief overview of PECSIP for those new to the company. TechSIP was founded in 2012 and currently we operate in 25 markets 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 software or software delivered as a service. TechSIP 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 and private sectors, that have complex needs when it comes to video collaboration. The financial performance has been strong and has also been continuously improving over the last quarters. Now to the highlights of the past quarter. Our annual recurring revenues grew with $4 million during the quarter, and this gives us an ARR base of $135 million leading Q1. In Q1, we had continued strong growth in our secure and custom business area with new ARR of $2.9 million. $1.3 million of this growth came from defense, which is a core segment to Pexit. In connected spaces, we had solid progress with our solutions for native rooms. This means Teams rooms, Zoom rooms, and Google rooms. And this was the main growth driver in this business area. EBITDA came in at $18.7 million, which corresponds to a 46% margin in the quarter. Free cash flow was just below $20 million in Q1. If we look at our Q1 performance in the context of the last 12 months, we see that the positive trend from the previous quarter continues. Our total ARR continues to grow, and year-over-year the growth rate was 17%. Our 12-month rolling EBITDA reached $39 million, which is a 68% improvement since Q1 last year, and this corresponds to a 30% EBITDA margin. Finally, the free cash flow continues to grow, this time with 14%, and ended at $32 million for the last 12 months. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. As you know, Pexip has two main solution areas. Pexip Secure and Custom is about privately hosted video meetings that give complete privacy and data control with a desired level of customization. Pexip Connected Spaces is about video meeting interoperability by enabling any meeting room to connect to any meeting platform. Now a few words about each business area. In Secure and Custom, we are targeting a segment of the video conferencing market that is largely unserved by the major players like Teams, Zoom, Google, and Webex. The market is growing fast, and currently we conservatively estimate an addressable annual market for Pexip of around $1 billion. We are catering to those organizations that have limitations with respect to the use of global cloud platforms like Azure, GCP, or AWS. And consequently, they have a need for their video conferencing software to run in a controlled IT environment, either self-hosted or in a private or sovereign cloud. The need for sovereign clouds in Europe has been on the agenda for some time already, as a consequence of the current geopolitical situation. But only recently have we seen that regulations and mandates are coming into place to govern the establishment and use of such infrastructure. The market is developing quickly, and significant investments are being put into building IT infrastructure and solutions in many countries. TechSIP is highly relevant in this context, and we are actively involved in several ongoing initiatives across several countries to make video meetings available in the new sovereign clouds. Let me briefly explain why we are so relevant in this area. As a technology built as a platform with on-premises deployment in mind, TechShip has some clear competitive advantages vis-à-vis other players in the market for European sovereign solutions. First, TechShip can be deployed in any IT infrastructure from public clouds to on-premises. Second, we are a European company operating within the European economic area. Third, TechShip integrates really well with other collaboration tools such as chat, file sharing, etc. And this is very important for service providers that want to provide a complete suite of collaboration solutions to customers. Finally, Pexip is a modern experience that meets the needs of an increasingly demanding group of end users that use video more and more. Together, these advantages put Pexip in a good position as the market for sovereign solutions continues to develop. Now to connected spaces, a part of the video device software market that we estimate to around $1.4 billion annually. Here we have basically completed the any room to any meeting platform vision. In close partnerships with Google, Zoom, and of course Microsoft, we provide the most comprehensive suite of interoperability solutions available in the market. This quarter also brought some good news for MTR users. because finally we have confirmation that TechSIP Connect for MTRs on Android is on Microsoft's public roadmap and will be rolled out in June. We know that many have been waiting for this, as quite a few organizations have a combination of MTRs on Windows and on Android. AI is high up on TechSIP's agenda and is being used both in the solutions we sell and in the organization. In the products, AI powered captions and translated captions are already available. Now we are working to enable transcript export for storage or integration with other private AI systems. The common thread is of course that the AI solution needs to be deployed in a controlled IT environment with full data control. Within the TechShip organization, we have enabled software developers with AI agents to support the development work. The experiences are really good, and we have seen solid results in both simple and more complex development tasks. Also outside of engineering, we have realized several AI use cases in sales enablement and back office automation. Now, let me hand this over to Osmund for a sales update.

Thank you, Tom, and good morning, everyone. In Q1, Pexip reinforced yet again our momentum across both the current custom and connected spaces. Let's look at the details. It's great to present another strong growth quarter for Pexip, adding 1.1 million US dollars AR and 12% year-over-year increase for connected spaces. And 2.9 million and a solid 24% increase for securing custom is a strong statement to our technology and to our team. Pexip continues to win large Fortune 500 customers, as well as government institutions, healthcare, justice, minister of defense, and important military organizations. Let's look at why Pexip are successful in these spaces. We see commonalities for why we win. These are number one, the acceleration of sovereign IT solutions and the need for data control. Governments across Europe and North America select TechSIP as the standard for secure internal and cross-agency collaboration. Let me share with you a few large win examples. A European state IT provider doubled its deployment with TechSoup. They were a large connected spaces customer who now has added secure meetings to power ministries in a sovereign, self-hosted environment. And one of the largest justice systems in Europe has expanded their commitment to TechSoup and now runs more than 3,000 court cases per day in a customized, sovereign, and controlled environment. The second trend is growth in healthcare. TechSIP continues to demonstrate success in the healthcare market. These customers require both customized and integrated solutions, as of course, full control of their data. The wins on the side from Canada and the US are great examples of healthcare organizations that have adopted TechSIP in a sovereign, customized environment. Thirdly, TechShip's unique position for classified and mission-critical collaboration. TechShip had multiple wins across classified networks in Europe, as well as large deployments at the highest impact level in the U.S. for government, underscoring our unique suitability for classified environments. Let me highlight a couple of our wins. A European Ministry of Defense now powers their classified communication with PECSIP across intelligence agencies, Ministry of Defense, and national security. The U.S. Department of War is now enabled with PECSIP secure meetings. And remember, PECSIP is the only certified Microsoft vendor at aisle 4, 5, 6, and 7 that can meet the strict security regulations of the U.S. government. Lastly, interoperability remains a strategic differentiator for Pexip. As enterprises and government institutions are using multiple technology platforms, Pexip's ability to deliver a seamless and consistent user experience across platforms is of the highest importance for these customers. Recent wins prove of a relevance a long-term competitive strength. One of the world's largest companies and a retailer double its commitment to Pexip as they run with both Microsoft and Zoom and need the Pexip Connect portfolio to make this work seamless across all their divisions. In addition, one of the world's largest consumer brands are now using Pexip Connect standard as they are consolidating technology platforms. They use the Pexip solution for their meeting rooms to ensure that all their hundreds of thousands of employees can simply meet every day, not thinking about technology platforms. These four commonalities are core to what makes Pexip unique in the market. They explain why we continue to win major customers in both secure and custom and in connected space. And at the end, we continue to see a solid pipeline across both business areas and expect sustained, strong traction in 2026 and beyond. And with that, I will hand it to Øystein for all the financial details.

Thank you. Starting with annual recurring revenue, we increased our growth to 17% overall. This is a combination of continued strong growth in secure and custom of 24% and connected spaces growing at 12% per year. We have a diversified base of customers, both across geographies and industries, with the majority of customers in North America and in Europe. Breaking down the growth into relevant components. We saw connected spaces increase with $1.1 million in the quarter, resulting from continued strong new sales. We also saw an improvement in the net retention rate compared to previous quarters. Secure and Custom continues to deliver strong growth, growing $2.9 million from a combination of new sales and a positive net retention. We continue to see customers growing from their initial purchase as their usage of Pexip expands. Churn is back to a more normal level, following a slightly higher churn in Q4. And combined across both business areas, we reach a net retention of above 100%, which is a milestone we have not reached since 2021. This is a result of good performance in both areas, as well as securing custom becoming a bigger share of the total mix. In terms of the P&L, recognized revenue came in significantly higher than last year. This is mostly due to the strong ARR growth in Q4, now becoming recognized revenue, and in particular driving our software revenues, which has earlier revenue recognition. The increased revenues drive the increase in EBTA. On a 12-month basis, revenue growth is in line with ARR growth, and is at 18% year-on-year, while EBTA margin is up to 30%, up from 21% a year ago. Our operating expenses were more or less flat compared to Q1 of last year. On cash-based salary, we have an increase of $1.5 million, driven by ordinary salary increases, as well as the not-USD rate appreciating, which is impacting our costs in Norway. Share-based expenses are down almost $2.5 million compared to Q1 of last year. which is due to a reduction in the share price during Q1 of this year. Other OPEX came in at $4.4 million, up $1 million, of which half a million was tied to a semi-annual company event that we did not have in 2025. Given disabled OPEX, 93% of the incremental revenue increase ended up as incremental EBITDA in the quarter, increasing quarterly EBITDA with $8.6 million as we continue to deliver strong operational leverage. Q1 is usually a strong cash flow quarter for Pexip, and this is also the case this year. In Q1, we had $20 million in free cash flow, up 7% year-on-year. This quarter, the working capital improvement was less than last year, which should be a positive for Q2. We left Q1 with a cash position of $81 million. However, it's worth noting that this position is significantly reduced now, as we have distributed $45 million as a dividend in April. Looking at the rest of the P&L, depreciation is in line with last year and similar with that financials. We also had a positive contribution from other gains losses of half a million dollars in the quarter, taking profit before tax to $16 million. With that, I give it back to Tom.

Thank you, Estan. Now to Outlook. As described earlier, we maintain a positive market outlook based on the key trends we see in the markets and our unique technology, strong market position and industry partnerships. The current expectation is that we will end Q2 with an ARR in the range of $137 to $141 million, compared to the $135 we had leaving Q1. You may notice that this range is slightly wider than usual, This reflects the fact that we have a sizable number of larger prospects in our pipeline that will create extra upside if they land in the second quarter instead of the third. Longer term, our financial ambition is to consistently deliver above rule of 40 performance across ARR growth and EBITDA margin. And last month, we are at 47. Last 12 months, we are at 47 on this parameter. And with that, before we go to Q&A, the next presentation from us will be on August 13th. Now, Q&A.

Thanks a lot. We'll start, as we usually do, with the questions from the analysts. And I believe we have with us live Kristoffer from D&E Carnegie. Kristoffer, can you hear us? I'll give him a second to align the data streams.

If not, I will... He's awfully quiet today. Either he's quiet or we are having technical problems.

Markus Heidegg from SED, are you online?

Yes. Can you hear me?

Yes, now we can.

Great. So thank you. I have a couple of questions. So I'll start with the first one here. And it's that secure meetings, it's still largely upsell driven, it seems like. So two questions in that. Do you expect the mix of new customers to increase over the coming quarters? Or is it going to be like this upsell driven? And the second part of that is, how do you think about the current penetration rate in your existing customers in secure and custom meetings?

So I think to start with the first part of the question, yes, this quarter you saw a lot of the sales insecure custom was on upsell to existing. That varies a bit from quarter to quarter. Sometimes new sales outweigh upsells and sometimes the other way. I think it's fair to expect continued strong contributions from both new customers and from upsell. It's interesting to see when you double click on where that upsell is coming from. A lot of it is actually from our biggest customers, which tells me that we still have significant room to grow even within our existing base. So the high watermark of how much is coming from a large customer impacts it continues to grow.

But very often we do see in the secure and custom area that the first order we get is relatively small and then it grows from there because they need to start testing the product need to understand how it works in the organization and then it's normally expanded to other parts of the organization over time so it's a quite normal kind of dynamic that we see in the secure and custom area.

And they have many examples of where, yeah, we use one today where very often the interoperability might be the first need, and then we deploy secure meetings with several minister of defense. We are now in the field, et cetera, et cetera. So we get basically deeper and deeper into existing customers.

So to follow up on that, how much do you think you have left generally on your existing customer base, and where is your penetration, high-level thinking?

So I think it's actually, I don't see any reason why we should not expect a similar level of net retention in the years ahead. So it's very difficult to, once you're maybe closer to when we're feeling fully penetrated, it would be easier to give an answer to that question. Right now we don't feel that that is the case. We have significant growth opportunities on most if not all of our secure customers.

And remember we talked about, I think it was the last quarterly presentation, that with AI and adding AI functionality we see sort of 30% of sell potential for current customers just by putting in the captions, putting in the translated captions and than the new AI functionality that's coming. So I believe as we continue to develop our products and solutions, the upsell potential will just increase.

Thank you. And then final question for me before I leave the word. The main growth driver you mentioned are native rooms in connected spaces, if I heard correctly. Is it possible to indicate how much of the new customer growth is native and government cloud in this quarter?

I would say within connected spaces, the vast majority of the growth is either from native rooms or from government in-drop, in terms of the net growth, and then the overall status is fairly stable.

That's fair. Thank you.

Congrats on a strong set of numbers.

I have a couple of questions firstly on what kind of Majority of the growth in securing customers deal with government entities and defense applications, et cetera. Of course, there's a potential trend going forward of European companies buying more European software. Can you say whether you're kind of starting to see this happening now? Are you seeing more leads with more enterprise customers in the securing customers segment? Some comments on that?

Do you want to comment? I think I can start. It's not a big move from enterprise yet. We do believe that we do see some larger organizations, particularly in the sort of energy infrastructure area or in more kind of critical areas for society as a whole are starting to sort of evaluate business continuity solutions where PECSIP will be a part of that suite of continuity solutions. But I wouldn't say, I think it would be going too far to say that we see a huge trend around this as yet, Osmond, but we do sort of, we are optimistic about the longer term.

Very optimistic. Have a lot of discussions around it. Haven't seen a lot of large enterprises in Europe moved yet. but on the government side, absolutely.

Interesting. You said, Trond, that you had some larger deals that could potentially land in Q2, also potentially in Q3. Which segment are these related to? Why are they larger than usual? And if that means that there is potential some kind of upside risk to the Q2 guidance because of these deals?

Yeah, it's a good mix. I think what's different this time, it's always difficult to predict timing of these deals, right? I mean, the customers do not always relate to our quarters the same way as we do. So the dates, if it lands in the one quarter or the other quarter, they don't really care, but we care a lot. so uh you know and that's really the same as it's always been i think the difference this quarter is that we have more of these uh deals that are currently in play uh that we see that could land on either side of the of the quarter so yeah i think that's kind of the short answer

This is not kind of you're seeing some sort of acceleration in the market with more larger deals. It's more that kind of the timing of where it could land is more difficult to estimate.

It's more of them now, and that sort of impacts how we forecast the quarter. So I think it's a positive development.

And is that a trend shift, or...?

I think that's already seen to some extent in the ARR numbers that we delivered also this quarter and in the quarter's past, right? I mean, we did $4 million in incremental ARR this quarter. I think last year it was 2.4. So, in Q1 of last year. And so, in that, we are seeing an acceleration.

Is it mostly secure in custom or both segments?

I think the biggest growth is coming from secure and custom, but we also have sizable opportunities in the connected spaces area.

Exciting. And last question from me, now that you're kind of above your target in terms of rule of 40, should we kind of interpret that that you would kind of accelerate OPEX investments going forward to kind of balance that to get more kind of back to that long-term guidance around Rule of 40, or are you kind of comfortable with the current level of OPEX investments that you have?

We don't have any plans to dramatically increase the OPEX. We said that we think we might move towards 300 employees through the course of this year, but that's really nothing dramatic that will change the numbers. We are selectively investing where we see a need to invest in people and in competence. related to people, we are also reducing where we see that there is a need to reduce and where we don't get the sort of return on investment that we need. So I think it's a balanced picture, but don't expect any major sort of increases on the OPEX or CAPEX side.

That's very clear. Thank you very much. That was all I had.

Thanks very much. Then we'll try Christoffer from DMI.

Can you hear me now?

Yes. Now we can.

Yeah, because of interrupt issues, unfortunately. But yeah, it's a great quarter. Congrats. You may already touch upon this, but I have some issues there. But on this whole private AI theme, which seems super exciting, could you maybe talk us a bit through the unit economics there, like for like if a customer adopts some of these solutions, what kind of uplift do you see to them? to the value of the contracts and the penetration there, just broad strokes.

No, absolutely. So I think for Pexip, we've seen revenue increases of 20% to 30% for customers adopting that solution compared to where they were before buying it. So it's a meaningful revenue uplift and a margin picture, which is not unlike the margin picture that we have in the company in general. We do have some cost of goods sold to India on this. But we are not buying the compute. I mean, the cost of the GPU and the tokens as well is the customer that is paying for. And so it's a meaningful revenue uplift with a margin picture, which is very similar to the products we already sell.

Great, thanks. And then on your product roadmap, can you maybe help us understand what you're investing in now to kind of continue to drive these? incremental features and give customers maybe the reason just to further upgrade their subscriptions beyond the current portfolio?

I think we can divide that sort of into a couple of areas. It's sort of continuing to develop on the core video solution that we have to make sure that it continues to be the most modern and well invested solution in the market as expectations from end users continues to develop. We need to sort of stay on that flow. The second is around integrations with, for example, the chat providers like RocketChat and at the most Element Wire that we're working with to make sure that the experience for those customers that are using an integrated solution is as good as it can possibly be. And the third is within AI functionality, continuing to develop on the AI roadmap making sure that we export transcripts, integrate with other AI solutions that operate in these sort of private AI contexts, so that we can again continue to be relevant also in this area for customers that need AI functionality, but are uncomfortable using the public cloud solutions out there today.

Thank you. And then finally on AI, I guess it's just, you know, a lot of people using these AI note-taking services where you typically see like a separate user calling into video conferencing calls and meetings. Does that in any way kind of drive revenues in terms of representing another user? So if everyone kind of starts having their agents joining the call, does that basically double the time or just like, how do we think about, is it mostly room space or? Is this also driving revenue opportunities? How do you price that?

I think for now we don't see that as a big driver of revenues. It would require an additional audio channel, for example. So there is some incremental revenue in that, but as of now we're not seeing that as a big driver of demand.

I'm looking to price that.

Yeah, so it would be essentially requiring an additional capacity for the platform, which will require a buy more license.

But remember that using Pexip secure video is really about controlling data, controlling what transcripts are being made, where they're stored, exactly how this works. So I would expect some pretty strict policies around having these sort of bots joining the secure meetings within the organizations that use them. So let's see, but...

All right. I see. Thanks. And then finally, I think it was in the last quarter, the quarter prior to that, you talked about you had some initial traction with desktop deployment of your interop, I think. Have you seen anything you want to share there on the traction there, how it's worked? Are you looking to deploy that with more customers or push it to more customers? I think it was like a large bank or financial institution or something like that.

You're absolutely right. We continue to have several discussions with similar customers in that field. We'll be sure to make a note of it when we close some of those.

All right. Thank you.

Lovely. Thank you so much. That concludes the Q&A session for this quarter, and looking forward to seeing you after Q2. Thank you all. Thank you.