Pexip Hldg Asa

Good morning and welcome to this presentation of PEGSIP second quarter results. My name is Trond Johannessen and I'm the CEO. Together with me here at Lysaker, I have Oystein Hem, our CFO, and Åsmund Fodstad, our Chief Revenue Officer. Together we will take you through the highlights of the quarter. The standard disclaimers apply as usual. First, a brief overview of PEGSIP for those new to the company. Pexip was founded in 2012 and currently we operate in 25 countries across the globe. We are a secure video meeting and video infrastructure company delivering software and software 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 directly compete with them. Our customers are mainly large organizations, both in the private and public sector, that have specific needs when it comes to interoperability, security and data control. The financial performance has been strong and has been continuously improving over the last quarters. Now to the highlights of the past quarter. Our annual recurring revenues continues to grow and this quarter we grew with 5.2 million dollars and this gives us an ARR base leaving Q2 of 140 million dollars. In Q2 we had continued strong growth in our secure and custom business area with new ARR of 4.9 million dollars coming from this area. A large part of this came from defense and national security, which is a core segment to PEGSIP, and I'll come back to that. Connected spaces also grew slightly in the quarter, which is good to see. EBITDA came in at $7.2 million, and cash flow ended at $8.1 million. If we look at our second quarter performance in the context of the last 12 months, we see that the positive trend from the previous quarters continues. Our total ARR continues to grow, and year over year, the growth rate was 18%. Our 12-month rolling EBITDA reached 40 million US dollars, which is a 60% improvement since second quarter last year. This corresponds to a 31% EBITDA margin. And finally, also our free cash flow continues to grow and ended at $38 million for the last 12 months. We do take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. As most of you know, Pexip has two main solution areas. Pexip Secure and Custom, which is about privately hosted video meetings that give complete privacy and data control with the desired level of customization. And Pexip Connected Spaces, which 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 & 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 estimate an addressable annual market for Pexip of above $1 billion. We are catering to those organizations that have limitations with respect to use of global cloud platforms such as Azure, GCP or AWS and consequently have a need for their video conferencing software to run in controlled IT environments, either self-hosted or in private or sovereign clouds. Pexip's technology is very well suited for these use cases due to its deployment flexibility, open interfaces and modern user experience. As a result of this clear market focus and recognized competitive advantages, 57% of Pexip's recurring revenues are now linked to customers deploying Pexip in self-hosted environments or dedicated sovereign clouds. This is a combination of our secure and custom customers and a number of self-hosted software customers using Pexip mainly for interoperability. One such example is organizations using PECSIP in combination with teams in closed US government Microsoft Clouds. Going forward, we do expect the 57% to increase as more on-premises and sovereign infrastructure is built for organizations with specific requirements for security and data control. Defense is a key segment for PECSIP, and currently around 15% of PECSIP's total ARR is linked to defense and national security. PECSIP is mainly used for secure video meetings or interoperability in dedicated IT environments. But recently, we also see positive developments in tactical use cases where PECSIP is used out in the field. Increasingly, video is used for better situational awareness through transfer of live video streams from drones into mobile command centers, armored vehicles, tanks, and even all the way back to headquarters. Pexip's technology works really well in these scenarios, and we're constantly expanding our partnerships and position in this ecosystem. Let me hand it over to my colleague Nick Ross, Director of Defence and National Security and former reconnaissance operator in the British Army to explain a bit more.

I was a soldier with UK forces for just over 10 years. As a reconnaissance operator, you are the eyes and ears of the force. With your patrol radio in the reconnaissance role, you had to interpret what you were seeing on the ground. You'd have to describe it. Over the radio and headquarters would be completely reliant on what it is that you thought you were seeing. But if you had video, it would allow you to be much more of a collaborative element. What's really important is to have a video platform that works across all environments. Video allows commanders to cut through in a way which is really unique. Ultimately, it's two or more humans collaborating on taking the best possible decision and using the least possible time to do that.

Thank you, Nick. Now moving over to another key focus area for PECSIP, namely AI. Organizations with strict requirements for data control would also like to have access to AI functionality, but deployed in their approved environment. Video meetings constitute an important input source for any AI productivity tool. And PECSIP as a self-hosted meeting platform can enable advanced private AI capabilities. Pexip can privately and securely exchange relevant meeting platform information to a completely private LLM on the customer's network. For example, Pexip meetings can connect to and use Google Gemini self-hosted and keep all data fully within the organization's own control. Another key area of AI application in Pexip is building customer specific integrations and video applications. Pexip is uniquely flexible to integrate and adapt to fit with specific use cases. AI significantly lowers the cost and complexity to write such custom integrations, which is a real amplifier on our API based architecture. Now to connected spaces, a part of the video device software market that we estimate to around 1.4 billion dollars annually. Here, we deliver solutions to connect any meeting room to any meeting platform. In close partnerships with Google, Zoom and Microsoft, we have a unique market position and provide the most comprehensive suite of interoperability solutions in the market. The latest addition to the product portfolio in connected spaces is Pexip Connect for MTRs on Android. And this is now fully publicly available for purchase. We know many have been waiting for this, and we are in active dialogues with customers to set up pilots for testing. The first orders are also in the books. Now over to Åsmund for a more detailed sales update.

Thank you, Trond. Good morning, everyone. It's fantastic to present yet another strong quarter for Bexip, reinforcing our momentum across both secure and custom and connected spaces. Let's look at some of the details. Having an 11% year-over-year increase for connected spaces and adding 4.9 million USD, a solid 27% increase for secure and custom, is a very strong statement to our technology and to our team. As well, it proves our investment and now track record in secure and custom. PEGSIP successfully adds more and more Fortune 500 customers, large government institutions, healthcare, justice, ministry of defense, and important military organizations to our customer base. Here is why PEGSIP is successful. We see some commonalities. The first one, the accelerated focus on data control and data sovereignty. Buyers in Europe are no longer asking whether their data can sit outside their own control. They are writing it into the requirement. That shift often makes Pexip the preferred vendor left at the end of the evaluation. Let me share a couple of large wins from this quarter. First, a European Ministry of Finance had two demands. Full control of data and controlled user or rather citizens access. This is a strong reference case for us, for every other ministry in that country and a future expansion opportunity for PECSIP. Second, a European police force selected Pexip for sovereign video. For law enforcement, sovereignty is not only about where data resides, it's about protecting operational secrecy. Winning in this environment validates Pexip against some of the public sector's most stringent security and procurement requirements. And third, a European financial services firm replaced its video platform entirely with Pexip, showing that regulated industries increasingly value the same sovereignty and control as government. The second command we see is we keep on winning in classified and mission critical environments. These are some of the hardest environments to enter. Few vendors can operate in air gap or classified networks. A European Ministry of Defence selected PECSIP as their main collaboration platform for more than 100,000 users for both video and chat. A US Army unit is deploying PECSIP across separate classified networks, and the European Defence Force signed a three-year agreement for air-gapped meetings. These wins matter because the credibility creates high barriers to displacement, long-term revenue for us, and natural expansion opportunities for PECSIP. Let me share a recent feedback from operators in the field, underlining, as Sean and we just heard Nick previously said, how well suited PECSIP is across these environments. Here PEGSIP powers classified video calls from aircraft carrier at sea over a secure NATO network and across multiple domains. The takeaway? PEGSIP is strengthening its position where security requirements are at the highest and where trusted communication is mission critical. Now let's look also at connected spaces. The last commonality we see is interoperability remains a strategic differentiator for PEGSIP. Few large organizations run a single collaboration platform. They can have Microsoft in one part of the business, Zoom in another, and Rooms equipment from several generations of investments. Standardizing of one vendor is expensive, slow, and sometimes politically hard. So instead, they buy interoperability. That is the gap we fill. Two wins from this quarter proves it. A global investment advisor rolled out PEXIP across its estate. Financial services is a demanding reference, heavy compliance requirements, low tolerance for meeting failures, and a long evaluation process. And a second reference, a large and innovative automobile manufacturer selected Pexip so that Zoom rooms can join team meetings rather than replacing the hardware. They use Pexip to bridge the two. It shows how we monetize the customer's existing investment instead of competing with it. In summary, these are the commonalities behind why Pexip are successful and keep on winning large customers around the world. With that, I will hand it over to Oystein for all the financial details.

Thank you, Åsmund. For annual recurring revenue, we increased our growth to 18%, and this quarter it was really secure and custom driving the growth, growing from $59 to $64 million, and growing into 46% of the ARR base. EMEA grew the most with $3.8 million, followed by Americas and then by APAC. And as Trond commented on, defense and national security had another strong quarter, and is now 15% of our overall ARR. Breaking down the growth into the various components, Connected Spaces saw an increase of $0.3 million. We're happy to see that net retention continues to improve and is approaching 100% also in this segment. New sales was somewhat below the usual level in Connected Spaces, as the majority of large deals closing in this quarter was insecure and custom. That meant that Secure & Custom had both good new sales and very strong net retention. We continue to see customers growing from their initial revenue as their usage of Pexip expands and by scaling initial rollouts. This quarter, that led existing customers to have net upsell of $4 million, driving the best ever growth in dollar terms for the segment. Churn came in at $600,000, which is on average for Secure & Custom. In terms of the P&L, recognized revenue grew 18%, which is the same as the ARR growth. And this enables us to continue to improve our EBTA, which grew 30% year on year. On a 12-month basis, revenue growth is slightly ahead of the ARR growth at 20%, while the annualized EBTA margin is up to 31%, up from 23% in the same quarter a year ago, and up from 30% out of Q1. That means that the sum of our ARR growth and EBTA margin is now at 49, well above our long-term target of 40. Our operating expenses have a modest increase compared to Q2 of last year. On cash-based salary, we have an increase of $1.3 million, driven by salary increases as well as the NOC-USD appreciation impacting our costs in Norway. Share-based expenses are in line with last year at $1.8 million, and other OPEX came in at $4.2 million, slightly up from last year and slightly down from Q1. In total, that meant that of the $4.9 million in incremental revenue growth, we managed to move 1.7 or 34% to the bottom line. That is somewhat below earlier quarters, which is partly due to the extraordinary low cost of goods sold last year. Despite of this, we continue to improve our margins, both on a quarterly level and on a trailing 12-month perspective. On cash flow, Q2 delivered $8 million in free cash flow, up from $3 million in Q2 of last year, helped by improved operating cash flow. The dividend payment had the largest impact on cash, returning $44 million to shareholders. And we exit the quarter with a cash and money market position of $45 million, and we continue to have both a robust cash position and consistent positive cash flows. On other items on the P&L, nothing stands out much. Depreciation is somewhat up year on year, and profit before tax is up $1.3 million to $6.9 million for the quarter. And with that, I give it back to Trond.

Thank you, Oystein. Now, outlook. As described earlier, we do maintain a positive market outlook based on the key trends we see in our markets, the unique technology, strong market position, and industry partnerships that we have. Our expectation is that we will end Q3 with an ARR in the range of 142 to 145 million dollars compared to the 140 we had leaving Q2. Long term, our financial ambition is to consistently deliver above rule of 40 performance across ARR growth and EBITDA margin. Last 12 months, we were at 49 on this parameter. Finally, before we go to Q&A, we will present our Q3 numbers on November 5th. Now Q&A.

Thank you, Trond. We'll start the questions from the analysts that are with us live. We have Oystein Rodegaard from ABG. Oystein, can you hear us? I can hear you. Can you hear me? Yes, we can.

Yes. Well, congrats on another good quarter. I want to start with connected spaces. Here you're of course having, if you look at the year-over-year growth, that is boosted by some large deals you signed in Q4 last year, but if you look at quarter-on-quarter, it's kind of flat, not growing that much. So just wanted to understand what are you seeing in terms of the underlying development in that market, and what is your kind of view on the future quarters going ahead for Connected Spaces?

I think what we're seeing this quarter from Connected Spaces is fairly consistent with previous quarters, where we've had a modest growth quarter on quarter, with the exception of Q4, where we really had standout growth, which is, I think, a fair expectation also going forward. So to have continued modest growth in Connected Spaces certainly compared to Secure and Custom.

So now with the Connect for Teams on Android also being launched, you don't expect that to drive an acceleration in the growth in connected spaces going forward?

It's a bit early to say in terms of what that impact will be. I think the positive results so far from that product have been good, but it's still very much in sort of proof of concept and early customer discussions. We haven't really seen enough orders to have a very clear perspective on how quickly that will adapt.

Okay, I understand. And in terms of costs going forward, you're now quite significantly above your own kind of soft guiding that you want to deliver above rule of 40 performance, which gives you some leeway, some kind of opportunity to kind of invest more in growing your OPEX space and still being within that target. How do you look at kind of future OPEX growth now for the next couple of years?

I think we are continuing to invest in people and add resources where that is sort of seen necessary, particularly on the commercial side. We see that we have a lot of traction in the secure and custom area. We are successful in defense. We're doing good in health care, in government. So adding specific sort of competencies like we have been very sort of successful in doing in defense, also in other areas, is something we're looking at. In general, we also see that we have savings coming, for example, from AI and productivity improvements in other areas. It's sort of balancing out. We have communicated earlier that we think the number of employees will grow slightly through this year, maybe approaching something like 300 employees towards the end of this year. And I think that's still our ambition, but we don't see any kind of dramatic change to the OPEC space or the investment level in terms of that will increase the costs dramatically.

And from that 300 employee base at the year end, how much should we expect that to grow in the years to come?

I think that's a difficult question. We will basically be agile and adapt to how we see the markets developing. We have to go after the opportunities that are out there. I think our biggest fear is the fear of missing out, not being able to be in all the right places at the right time. I guess it all depends on how the markets will develop. I think you will see, as we have seen before, that in some areas we will reduce. In other areas we will increase. Whether that balance ends up with a slight increase, flat, or I guess it just remains to be seen. But I'm not foreseeing any dramatic changes. It's going to be pretty predictable and easy to forecast going forward, I think.

Very clear. Thank you very much for taking my questions.

Thanks a lot, Øystein. Then we'll move on to Kristoffer Bjørnsen from D&B.

Hey, good morning. Can you hear me?

Yes, we can.

Great, thank you. So I just wanted to touch on the development you're expecting for ARR in the third quarter. There's no doubt that there is increasing demand for the kind of You've been seeing really good DRA-DAR over the last couple of quarters, but now you're kind of guiding for Jens Stoltenberg Take up again into the fourth quarter and beyond, hopefully.

I think this is always difficult, right? I mean, giving outlook and guidance on the next quarter. The headline here from our side is that we're trying to give you the best possible picture of how we see the quarter we're in. This time we meant to give a positive view. I mean, we don't see any changes to the positive trends we have seen over the last quarters. We think they will continue. The difficult part is always to judge exactly which quarter some of these deals will end in. In the previous quarter, we expanded the guiding range to take this into account. We could have done that this time as well. We decided not to, pretty much on the balance. It's a bit of a juggling and balancing act to give you these forecasts and this guiding. Overall, and looking at the second half of 2026 as a whole, You will see that, or our firm belief is that the trend that we have seen over the last quarters will continue at the same or accelerated rate.

So you're not expecting any particular account to turn out in the third quarter or anything like that?

Don't read too much into whether there is one million here or there on this quarter's guidance, because I think that then you're over-interpreting a little bit the numbers we're giving you.

The momentum is still there. Pexip is successful. Again, we're trying to give you the best guidance on the exact quarter, but again, second half looks strong for us. Momentum continues.

All right, thank you. And then as a follow up on this, maybe it's a bit of an old question, but everyone's obviously investing heavily in AI now and trying to find ways to, you know, expand revenue opportunities, but also to find efficiencies internally. So, you know, some people have asked me this morning about the growth in OPEX and the OPEX per head, basically. Can you maybe expand a bit on like How much are you using AI? Are we at a stage where we're seeing significant token consumption, but not really yet an ability to take out efficiency? Hence, OPEX is a bit inflated now, or is it too small to care?

I think I'm quite comfortable with our AI costs at the moment. I think we're using it in the right areas and for productive use. It's becoming a relevant cost item, which is part of the increase in other OPEX. may be the predominant driver in that cost category. But it's a bit too soon for us to say that we have that meaningful productivity gains so that we can reduce the number of staff significantly. Hopefully that's part of why we're also able to do more with the same number of people. So we've consistently added more ARR and also more delta ARR every quarter, even though we're the same number of people as we've been for the past couple of years. And AI is more an enabler of making sure that we can continue doing that.

Exactly. It's a bit front-end loaded, the investments, and then you reap the benefits going forward, perhaps.

I would be surprised if that's very different from most other companies.

All right, thank you.

Thanks a lot, Kristoffer. Then we'll move on to Lisa Wiemir from Sparbank and Markets. Lisa, can you hear us?

Yes, I can. Good morning. I just have one question. I find slide number eight really interesting with 57% of your revenue coming from self-hosted and sovereign cloud and especially the 11% from connected spaces. Can you talk a bit about the development of that figure in connected spaces like over the last year and how you see it moving forward?

We thought we would just double click a little bit on the connected spaces number because it's sort of one big chunk and just to illustrate that quite a few of the use cases that we report as connected spaces ARR today are in a way linked to self-hosted and sovereign clouds which is more comparable to the secure and custom business area in the reason why they choose Pexip. We're not planning to introduce this as a whole new reporting segment and what we call secure connected. I think we will refrain from trying to start to give too much detail on that, but it's a way of illustrating that Pexip as a whole, the majority of our business is linked to what we can call security and data control. and that number as a total will increase. Exactly how this 11% will develop will of course depend a lot on the total. We do believe it will increase, but whether it will increase as a share of the total or just as an ARR number, it's a bit hard to say, but we will keep you posted on the developments here. Somehow.

Thank you.

Thanks, Alteisa. Then we'll move on to Markus Heiberg from SEB.

There. Can you hear me?

Yes, now we can.

Yes. Good. Thank you. So just wanted to dig a bit deeper into the secure and custom growth. Now it's also very upsell driven. How do you see that into the second half, new customers versus upsell? What do you expect the mix to be into the second half?

I think it's a good question. I think what we're seeing is more and more customers starting with a relatively large deployment still, a couple of hundred thousand dollars, which is still a meaningful customer, but then expanding materially as they ramp into full production. I think that dynamic will continue to see with a decent level of new sales, but really with net retention and net upsell perhaps being the biggest contributor to net growth. Whether on a quarter-to-quarter basis, that will vary a lot from what deals close.

The way it works, you will never see or rarely see a large customer coming in with a $1 million ARR from zero into our numbers. It will generally start with a couple of hundred thousand, as Sten says, and then you will add the next 800,000, and then it will be classified as upsell in our numbers and not new sales.

We typically drive these customers with what we like to call proof of concepts, which is the two, three hundred maybe paid POC. And then they expand from there and then they start integrating, et cetera, et cetera. So this is a kind of a natural development on the entire Sicker and custom base that we have. But this is typically how it works and also why you will see different from quarter to quarter on these two parameters that we're basically asking.

Thank you. And the final one for me is on the revenue recognition over the past couple of quarters seems to be a bit more front loaded, maybe with the software sales. How do you expect the revenue mix from software sales and as a service sales cloud based going forward? Should we expect more front end loaded revenues also going forward?

Yes, I think that's a fair expectation, although there's a relatively modest impact in terms of the overall. But given that most of the growth is in secure and custom, most of that growth is on software. So I expect that share to grow slightly, and then as a consequence, revenues will be a bit more front-end loaded.

That's clear. Thank you.

Thanks a lot. Let me see. Then we also have Halvor Dybdal from Arctic. Halvor, can you hear us? No? Then I think we will... Let me check if we have any... We've received one question by email from Jørgen Weidemann in Pareto. When you say that the second half development in ARR will be similar to previous periods or accelerate, I seem to remember that Q4 2025 saw substantial growth on large contracts. Do you think the second half in 2026 will be comparable to the second half of 2025, or are you referring more to the underlying growth excluding those contracts? We're referring to the general trends of excluding those extraordinary large contracts in Q4 of last year. We expect the second half to be good, but I wouldn't necessarily put into the baseline that we'll deliver another 8 million plus quarter in Q4. Very good. With that, we'll wrap up Q&A. Thank you so much.

Thank you.