A very good morning to you all, and welcome to Pexip's Capital Markets Day 2021. My name is Michel Sagen, and I'm the Chair of the Board of Pexip. I'm also one of the co-founders of the company. Today, we are very excited to give you insight into our strategy, how it is anchored in global economic trends, what is unique about our technology and team, our value proposition to large organizations, and how we will succeed in what we are deeming the new video economy. If we take a step back and take a look at what is happening in the world at large, what we can safely say is that the world has changed dramatically over the last years, which in turn has influenced the way we work. In 2020, COVID hit, and the video communication market exploded.
Everybody had to use video, and it was widely embraced. The range of applications of video was varied, from internal meetings to customer or investor meetings, from virtual doctor's appointments to customer service on video. We see that these applications of video continue to evolve and expand. Video has become an integral part of organizations' strategies and their workflows. Knowledge workers are and will continue to work from a variety of locations. The home, the office, the long weekend getaway, the co-location hub in the suburbs. It's a mix. It's hybrid. The same applies to e-commerce scenarios and when governments are communicating with citizens. Research shows that customer satisfaction significantly increases through the use of video. The next mega-trend that is influencing the way we work is increased climate consciousness.
Climate change, of course, has been a concern for decades, but if there's one positive thing that the pandemic has done, it is to highlight that there are alternative ways of working that are more effective and that also can benefit the climate. This will affect business travel. A return flight from London to Paris for one meeting is no longer seen as necessary or, more importantly, acceptable. Neither is traveling across the city for a 30-minute consultation with a financial advisor when it can be done on video. There's been a mindset change. Combine this with an increased focus on sustainability, and organizations are asking how they can extend the lifetime of their equipment by making it work for them in smarter ways and consume less energy.
At the same time as technology can help unify the globe, there is no denying that we live in a time of geopolitical complexity and tension. All nations need to think about how they are operating their structures for defense, government, and public institutions, which is resulting in increased demands for communication tools that promote and facilitate privacy, trust, and data sovereignty. Who am I willing to share my data with? Is it okay if my infrastructure goes through this or that territory? And who controls the technology? These are real and difficult questions that many of our customers are dealing with every single day. Which brings us to the closely related topic of cyber vulnerability. There is no doubt that we are increasingly exposed to cyberattacks on our governments, countries, infrastructure, and businesses.
From data breaches to denial-of-service attacks, organizations are taking measures to ensure that mission-critical communication and information security are protected from these threats. For example, if you're a military complex, a public health organization, or an oil platform, and you are under attack, how do you enable important visual communication with all critical personnel when there is no internet connection? This is something which we are all exposed to, and it's only the beginning. Cybersecurity spending has been increasing steadily. Research company Gartner is forecasting the worldwide information security market to reach a staggering $170 billion in 2022. Once again, this is the reality that our customers are living in. What does this mean for the video industry and Pexip's role in it?
We believe that the accumulation of all these things, rapid digitization fueled by the pandemic, increased global climate consciousness, geopolitical complexity, and cyber vulnerability represent a tremendous challenge where Pexip can help organizations globally. We think video will play a crucial part of the solution. In fact, we believe we have seen the advent of a new video economy, where video is fully integrated, not only in meetings, but in a wide range of exciting applications in healthcare, retail, financial services, and many other sectors. The Pexip platform is the engine at the core of many of these solutions. To tell you more about this, you will today hear from key members of our team, starting with our Interim CEO and CFO, Øystein Hem, followed by our CTO, Nicolas Cormier, and President Global Sales and Marketing, Åsmund Fodstad.
You'll also hear from Vice President of Architecture, Jordan Owens, accompanied by Peter McCarthy, who is Vice President Public Sector Sales. Last but not least, our Chief People Officer, Ingrid Woodhouse. For today's agenda, we'll start with strategy, followed by technology and target markets. We'll do a short break before returning with our execution and culture. We'll end with a Q&A session, and you can already now ask your questions in the chat section of the stream or send an email to ir@pexip.com. With that, I'd like to hand things over to our interim CEO, Øystein Hem. Øystein?
Thank you so much, Michel. Thank you for that introduction on the key trends we see in the market, which is a key underpinning of our own strategy for the time ahead. First, however, I want to give a quick recap of where Pexip is today. We are proud of what we have accomplished so far on our journey, even though it feels like we have just gotten started. Pexip today is a global technology company with more than 500 employees spread out across the world. Our R&D and software development teams are located in Europe across three main hubs, while our sales and marketing team is global, as the market we address. We are proud to serve more than 4,000 large organizations across enterprise and public sector in all our key markets.
This clear focus on large organizations and solving the most complex needs in our industry is a big part of why we win, which you will see more of later. We serve our customers together with our partners, and we work exclusively through channel resellers. They enable us to scale better than we can on our own and ensures that our product integrates well with the rest of the customer's IT stack. Our success with large organizations and the strength of our technology is a key reason for our net retention rate being at 100%, showing that we retain our customers and our annual recurring revenue that we bring in for the long term.
These strengths of a uniquely capable team of how we work with partners across all of our ecosystem and our unique technology targeted toward the needs of the large organization is why we have built a subscription base of $100 million in annual recurring revenue. It's these strengths that will take us to our next milestone of $300 million. Despite being a relatively young company, many of the Pexip founders and employees have been in the video industry for decades, helping build Tandberg to become the global leader in video conferencing. After Tandberg was acquired by Cisco, the founders of Pexip left to start a new company in order to transition video conferencing from hardware to software that can run in the cloud.
This combination of deep industry expertise, a proven vision for where the market was headed, and a clean slate to build the best video platform on is why Pexip has been so successful over the last 10 years. This has powered Pexip's growth from the start, and we have shown that we can consistently grow and adapt to the market in front of us, despite huge changes in the competitive landscape and the various platforms that we work with. Now that the video market is seeing explosive growth and has more players than ever before, this gives us confidence in remaining at leading edge of innovation and finding the best ways to meet customers' needs. Since our beginning, we have grown 65% per year and are now at 37% over the last 12 months.
Founded in Europe, EMEA continues to be a very strong market for us with more than 50% of our ARR. We are also seeing very positive growth, both in our Americas markets, where our success with large enterprise and large organizations is especially well suited, and in Asia, which for us is a fairly new market, but with a growing presence. Pexip continues to win the trust of new large organizations, and we are humbled to serve 15% of the Fortune 500 companies and a range of other giant enterprise and public sector organizations. We see the impact of these large organizations also in our customer mix, with customers paying more than $100,000 a year are growing the most, and it's the customer group we continue to innovate for.
The hyper adoption of video has significantly changed the way a lot of companies will conduct business with end users in the future. The world leapt three years forward in the digitalization of customer interaction, paving the ways for new ways to use video. If you look at verticals such as finance, healthcare, retail, and others, many have already been working on a digital customer engagement either prior to COVID or during the pandemic. This has proven to be very successful, both from the company's perspective, but also for their end users. Now, the end users are used to using video, and they see great benefits in using it in many instances. With video, our engagement can be richer, more efficient, more flexible, and more sustainable than the alternative.
What we see now are many of the same verticals looking to digitalization and video to be a strategic differentiator moving forward. This is helped by the massive adoption of video among end users. During the pandemic, end user video increased over 5x from 13% of end users to 70% of end users being comfortable using video. This meant that the vast majority are now familiar with video, and this will increasingly be their expectation to have as an option. This mass adoption of video has dramatically increased the scope and use of video communication, which has transformed our market. It has also transformed our own focus as a company and the areas where we see we can add the most value. Since our beginning, we have worked to empower people to engage in a better way using technology.
In the beginning, our focus was to support our customers in making video meetings work, regardless of which platform they're using and what type of video equipment they have. Providing interoperability and reducing friction has been at the heart of the value we bring to customers and continues to be at the core of what we do. Moving forward, as video adoption has made video communication a key part of how organizations work, we see more and more example of use cases where video is mission-critical. We see this in how organizations digitalize their customer interaction, how their core operations depend on virtual face-to-face communication. Pexip is increasingly finding that our capabilities are uniquely suited to meet those customer needs, with customization, resiliency and security are non-negotiable requirements.
We want to be that driver of positive change, enabling a more efficient, more flexible, and more sustainable way of doing business, and be a driving force powering the new video economy. These trends are fueling the massive market growth in collaboration and in video communication. It's important to me to point out that Pexip does not aim to serve the full market, as we see that some of our partners have a better position to provide the end-to-end collaboration offering. We will rather partner with them to meet our customers' full needs. However, the markets we do address are in themselves huge, estimated at $5 billion within 2024. Within this core, where video technology is the key component, Pexip has the leading technology.
In fact, we have a great starting position to become the number one player in our three core markets, and this is what we are now setting out to achieve. It's this focus on where we are unique and where our technology really shines that drives our success. Whether it's in video infrastructure, where we support interoperability across more video endpoints and across more video platforms than anyone else in the industry, or if it's in critical meetings, where the most security-conscious organizations with the most critical meetings are moving to Pexip, or if it's in video enablement, where the world's leading telehealth services, retailers, and financial institutions are running their customer experience on Pexip. Our core is video, and as we'll learn today, within video, we can do things that no one else in the industry can.
In addition to technology, Pexip relies on our ability to build a wide ecosystem of partners and engage in theirs. From the very beginning, Pexip has relied on building partnerships to provide interoperability, and we rely on partners in how we sell and how we serve our customers. Our ability to work with partners is increasingly important because no single vendor can meet the needs of a large organization across their various use cases. This ability will be even more important in the future as new use cases for video emerge. Working with partners is part of Pexip's DNA and a core reason for our success. Equally important to our technology and our ecosystem of partners is our unique culture.
Pexip has some of the individuals that have shaped the video industry since its beginning, some of the most experienced heavy hitters, and some of the best talent in our industry. We are incredibly proud of the quality and the passion of our team, and the culture and values that help them thrive in Pexip. To remain a leader in our industry, you have to move fast, and the way we do this is through attracting and empowering the best talent, making sure they have the support of their team, making sure that they are free to express themselves and don't waste time, and making sure that they have the freedom to make the right decisions for the customer and for Pexip. Last but not least, making sure that we all behave in a professional and fun way that sets us apart from our competition.
It's these behaviors who have brought us success and will continue to do so. In summary, and what you will hear more about today, Pexip wins because of our unique video technology and how we apply it within our three target markets. We win because of how we work with others in the industry and how we integrate our technology to enhance both our own and others. We win because of the unique talent and culture that you will experience some of today. At the end of today, I hope you will have a better understanding of these three core strengths and why they position us to succeed in the time ahead. What better way to start than with a deep dive on our technology from our CTO. Nico, the stage is yours.
Thanks, Øystein. Good morning, everybody. I'm Nicolas Cormier, CTO at Pexip. I look after our research and development department here at Pexip. Today, I want to go back to what has made us successful the last 10 years, the technology. There is a bit of a recurring question from you guys, investors, and also externals, and customers in general. What is it that you do that is so different from your competitors? We love your use cases, the use cases that you solve. We love what you do, but how come that what you're doing is unique? If teams wanted to do it, could they do it as well? I want to spend now literally 10-15 minutes to talk about the technology, why we are so different.
I think it's very important from the get-go to remember that the differences that we picked on ten years ago are gonna make us very different into what we solve, so sorry, comparing to our competitors, and also sometimes make our competitors partners because of the way we solve things. Let's get started with the technology. Just before that, I want to rewind a little bit into what makes video conferencing magical. It's quite simple. You basically capture a video or an image and a sound, and you transmit that to a terminal kilometers away. This is the very magic moment where you can see in real-time the person that you wanted to talk to kilometers away. Unlike streaming, you have to do this in real-time, and this is the crux of our industry.
You have to pretty much transfer all of that data instantly. This is a study that was done by the International Telecommunication Union way back. The intent here was to have subjects having a meaningful conversation where there would be added delay between hearing the voice of the other person a bit randomly. The findings of that study was that essentially anything over 150 milliseconds means that the dialogue becomes unnatural, tiring, and frustrating. That relates very much to what some of us, and probably some of you guys as well, are experiencing now and then, which is video fatigue. Your brain has to work a lot more, and it's not really feeling natural. 150 milliseconds is all you have in our industry to add magic.
This is really the magic number that I want to talk to in the rest of this small segment around technology. What is it that Pexip does within 150 milliseconds that make us so different from our competitors, but also that allows us to solve use cases that make a huge difference for our customers? It's important to remember as well that those 150 milliseconds are already significantly reduced by just physics. You have to transport packets, in this instance, from Norway to the US, and that takes a significant chunk of those 150 milliseconds, right? The real magic is when what you do with the rest of that time. It's called, let's call it compute for now. It's whatever you do between capturing the signal and then rendering it on the other end.
This is where, really, the real magic happens. This is where we do things like compression, like AI, being able, you know, to detect faces, being able to reduce background noises. All of what you hear that feels very innovative and very exciting nowadays around video conferencing, this is within that boundary. Such incredible constraints. As always, you know, the more constraints you have, the more innovative you have to be. This gave birth to incredible things like being able to anticipate movement where you're gonna be next in order to compress your signal faster. Before being carried away in all the very technical things, I want to present a little bit who does that magic, who works on that, you know, 150-millisecond compute piece that I've talked about just now.
We have 180 R&D engineers here at Pexip. Something to remember really is that there's only probably a dozen of players in our industry, in the world, building their own video technology, and we are one of them. To be able to build your own video technology, you need very much rocket science kind of profiles. Which is why we end up hiring, relocating people from all around the world, because we need those niches, those niche skill sets that they bring with them. The outcome of that is they're very passionate about what they do, they want to come here to work for Pexip, and also it shows very much into our turnover or retention rates.
People at Pexip, first off, we have, like Christina was saying, incredible culture, and they stay because of that, but also because of what they work, all of the great applications we have in video conferencing. That is a direct outcome in terms of products, technology, but also patents, as you can see on this slide. Now that I've talked about who builds the technology and what is the constraints and the crux of video conferencing, let's go back to the big question: What is it that we do? Why are we unique, and why will we be unique for in five, 10, 15 years following now? It goes a bit like this. We have spent the last 10 years in Pexip, building three very different kind of architecture that you can call them as differentiators in terms of technology.
They look very technical on paper, but I will basically spend the next five minutes to explain what they are. Remember though, that those three things are very differentiated from our competitors. Why do we call it architecture? It's the same as when you build a house or a building. You have to start with the architecture and then build it. Changing your architecture once the building is built is very difficult and near impossible sometimes. Those points that I'm gonna present now are architectural choices that we made 10 years ago, and that make us very different today. Let's get started with core transcoding. Essentially, core transcoding goes back to the compute story I was telling you about, the magic, where the magic happens, those 150 milliseconds.
Here you have two ways to do the compute. Either you do it on the end user device, so you do it on the user's PC, the mobile, or the meeting room system. Or you do it in the network in the background. If you look at our competitors, what they've decided to do is essentially to do that compute, so AI compression and so on and so forth, on the PC, on the mobile, and that's called a heavyweight client architecture. Well, we decided to do it in the network, on the server side. That's called a lightweight client architecture. Why do we care? Why do our customers care? Well, it allows you to do things, and those are the implications and benefits that we can do with the different architectures.
On the more left side, our competitor side, you see that most users actually have to download the application if they want to benefit from the magic. They also have very often been basically limited to their own single protocol. Essentially, Zoom can only talk about Zoom. Teams only talk to Teams, and so forth and so on. Also, like I mentioned earlier, AI and compression has to be done on the device itself, which means for all devices, but also devices that are just, you know, from last year, but don't have the latest and greatest graphics card, they won't be able to run the latest and greatest AI. Those are some of the implications.
On the Pexip side, the lightweight architecture allow you basically to have a no download use case where you can use a very lightweight client and still benefit from the latest and greatest AI compression and so and so on. Also, because we run in the back end, we can speak as many languages as we want. That talks to the interoperability that we are talking about very often. We can talk Cisco, we can talk Tix, we can talk Google and so forth and so on. Again, those things in essence really bring out some of the benefits of the Pexip platform. Oops, sorry. I just added on this slide here three very specific ones.
One that really talks to, and we'll talk about it a bit later, a segment that we see now is getting a lot of traction around mixed reality for workers to wear glasses and being able to talk to an advisor or an expert on the other side. What we found out here is that our architecture allow basically those very lightweight glasses to be run for eight hours with AI while our competitors can run only 30 minutes. Huge differentiator in this one. AI as well, like I mentioned earlier, being able to add the latest and greatest NVIDIA technology, that's something we're gonna talk about as well a bit later, means that you don't need to buy on your PC or on your mobile the latest graphics card.
You can leverage that in the back end in the network, which means a 10-year-old meeting room equipment or a 2-year-old iPhone can run the latest and greatest AI with no download whatsoever. Finally, more on the environment. Thanks to our architecture once again, we don't have as much bandwidth going to the end user, going to the device, and also we don't consume, like I was saying earlier, as much battery. All things considered, and without forgetting as well, the equipment lifetime, we can extend the equipment lifetime. All things put together, it's much more environmental as well. All right, so this was again, the core transcoding. We do things in the network while competition do it more on the device itself. Let's move on now to the second big differentiator called agnostic infrastructure.
This one is a bit hard to explain, so let me use a small analogy here. Think of a power grid. Our competitors use what we call a shared, publicly facing on the internet service, and picture it as just one big global power grid. Essentially, that power grid is powering the. For instance, Teams has a power grid that powers the Teams clients. Zoom has a grid that powers the Zoom clients and so forth and so on. But they have a single one that sits on the internet. What we decided to do 10 years ago is a bit harder, but essentially it allows us to have not just one grid, but as many as we want. Today we do have the same grid as our competitors.
We have a public grid that a lot of our customers are very happy to use because that's just, you know, the level of security that they need. However, for the ones that do not want to run on our public grid, they can decide to either consume our semi-private grid or sovereign grid, say the grid that we run only in Germany or only in the EU. Or they can decide altogether to take our technology and basically build their own grid, making them completely in control of their infrastructure. This is very much the beauty of this differentiator, is that we are not stuck with an architecture that allows us only for one big public grid. It allows us for as many as we need, and that means total privacy and security for our customers. Here you can really see the benefits.
Essentially, a lot of the certifications we have are excluding each other. Let me give you an example. If you want to have some certifications in the U.S., then your service cannot be running anywhere than in the U.S. and surely not be running, for instance, in some other part of the world. By having as many grids as we want, we are essentially having the sovereign grids wherever we want and being able to give customers the level of security and privacy that they need. Jordan will and Kit will be covering a bit more of that, especially from a U.S. angle a bit later. Again, this is a very much an architectural choices that we made 10 years ago that we are still very excited about, and that is very hard to replicate.
I will finally talk about the last one, which is built as a platform. Here, it's quite simple really. When you look at competition, they build basically their offering around a single end user application. Essentially, their core technology is here to serve the application, and it's very much tightly coupled. The decision we took 10 years ago was to say, "Let's build the technology and decouple it as much as we can from the products from the end user applications." What does that mean? That means that essentially we can license the technology to other players, to other partners, for them to build their own applications. I recently talked to our three core market segments.
We have other segments that are actually delivered by some partners of ours based on our technology, where we are not necessarily interested to enter that market, but they can do it, they can do it themselves using our technology. Being able to license the technology has been a key factor of our success. This was really the three core differentiators. Core transcoding, we have this lightweight architecture, which allows us to basically run AI compute with no download whatsoever. Agnostic infrastructure, we can run as many grid as we want and give the level of privacy that our customers require.
Finally, build as a platform, allowing us to license the technology and for other partners to basically build use cases where they add a lot of value and still can leverage, you know, 10 years of those 108 engineers work. This was a quick introduction on the technology. Again, why do we care? Why you, as investors, care about this, but also what difference does it make to our customers? This is where I would like to invite my colleague, Åsmund. With Åsmund, we will be basically covering the use cases with customers and how our unique technology make sense there.
Thank you, Nico. Thanks for having me on stage. What a fantastic technology.
On that note, let's look now where the technology shines for us and why we are making our customers so happy with the Pexip technology.
Mm-hmm.
We looked at our three differentiators on the technology side. Of course, we can use our technology, leverage our technology in many different use cases. At the current stage of our company, we want to find strength, we want to find velocity, so we have decided to focus very much deeply onto three core markets.
Mm-hmm.
Åsmund talked about it, video infrastructure, critical video meetings, and video enablement.
Yeah.
To get started, we're gonna double-click on video infrastructure and then look at the two others a bit later. What is the use case for us on video infrastructure? It's quite simple, really. Like, a company has built already some existing video conferencing equipment, and they have decided now to move away from whatever they were using to move, say, to Teams or to, say, Google Meet. What we allow them to do is to register all of their previous equipment onto our Pexip cloud, make it easy to manage.
Mm.
Make it secure, groundable, but also basically upgrade all of that equipment with a brand-new bleeding-edge AI experience.
Mm-hmm
that they would not be allowed to have unless they were to upgrade all of that equipment.
Mm-hmm.
Again, that talks to our very good core differentiator on the technology side, the video transcoding. This is really, again, going back to the presentation I had a bit earlier. Core transcoding allows basically to do as much as we want in the network.
Mm.
Which means we can take as many protocols as we want. Here, we're showing Microsoft and Google because that's where we find the most traction right now. But literally, we can add within minutes a new compatibility layer. Here I want to highlight as well that because of our technology being so different, some players that sometimes are competitors to us become very, very good partners.
Absolutely.
Microsoft is one of them. Microsoft is maybe the best partner we have and we work with on a daily basis. On that note, let's hear from the CEO of Microsoft Norway in a video right now.
At Microsoft, our partners are at the core of our business, and Pexip has been a strategic top-tier partner since 2016, and we have had an amazing growth together. We are so proud of the partnership and our joint efforts. Together, Microsoft and Pexip, we are working with some of the world's largest organizations across every industry to provide users with the best possible modern work experience. In Microsoft, we truly believe that we can achieve more through collaboration, and we are fully committed to continuing the long-term success with Pexip.
Thank you, Nico, and thank you, Microsoft, for that great partnership, both on the engineering side and on the commercial side. Where do actually Pexip play? Let me try to exemplify that with a couple use cases where it's not about the generic video meeting, but about how Pexip are leading the way, where video is becoming the driving engine and fueling the opportunities for future growth for these businesses. Let me start with the Volkswagen and video infrastructure. Pexip is already a leader in this segment with the best interoperability solution to any other technology vendor in this space. We're still the only one with certification for Microsoft for Skype for Business, the on-prem server, the self-hosted Microsoft Teams solutions, and with Google. Volkswagen is a great example of this, where Microsoft and Pexip went together to replace their old infrastructure technology, in this case, Cisco.
Volkswagen had both Microsoft Skype for Business and Teams on their desktops, but they want, to your point, seamless integration with existing technologies in their meeting rooms. In this case, they keep on buying Cisco endpoints. The Pexip solution is unique for these exact reasons. In addition to the interop solution, Volkswagen choose Pexip for security reasons. For Volkswagen, no data should leave Germany or for that sake, their Volkswagen facilities. To have full control, Volkswagen uses Microsoft Skype for Business on-prem server in combination with the Pexip technology, also on premises, to make this as a secure solution as possible. No other vendor than Pexip is certified by Microsoft for this, and that is of the highest importance for Volkswagen when they choose their technology. Further on, Volkswagen is concerned around industrial espionage.
For these highly secure meetings, Volkswagen IT security team makes utilizing the cloud an absolute no-go. Volkswagen needs to have full end-to-end control of their solution and data, and are therefore avoiding cloud solutions for this kind of meetings. As any large organization, Volkswagen also have communication with other companies, customers, vendors, and suppliers. Volkswagen also use their Pexip solution with sister companies like Porsche, like Audi, and like MAN. These companies happen to also have their own Pexip solution with similar setups, similar reasons for choosing Pexip. It's a combination of on-premises, Pexip-as-a-service, and with multiple integrations with Microsoft, Poly, Cisco, and other technologies. Again, Pexip is the only one certified by Microsoft for all this kind of solutions or combinations. It's a major criteria when Volkswagen, Porsche, Audi, and MAN choose Pexip, and it's truly a Pexip unique solution.
Pexip had many major logos in the video infrastructure segment. Let me highlight a few ones. The world's biggest technology companies like NVIDIA, like Google, and LinkedIn is actually also using Pexip themselves. Maybe on this slide, more interesting, Airbus, who uses Google and Pexip, and AirAsia, where we teamed up with Google then to win it back from a Zoom solution. Where is Pexip unique in the infrastructure, and why is that the case? We win with our unique transcoding, basically integrating with any technology out there, and if there are new ones coming to your point, we can do that fairly easily. Agnostic compute is the second one. Pexip support any compute on-premises, self-hosted, hosted as a service, or any hybrid between these three kind of solutions. Also, Pexip certification with Microsoft and Google are second to none.
In addition, we enjoy both a commercial and an engineering partnership with these large technical giants. Very few others can actually do that. A fourth Pexip uniqueness is being able to go to the market together with Microsoft, together with Google, and together with our channel partners. It's also a unique setup for us in video infrastructure. What is then the future opportunity here for Pexip? Well, the way we see it, complexity will increase, driven by hybrid work and the emergence of the new video economy. We already see this today with Messenger, different social media platforms, multiple cloud providers, and so forth. We believe interop is here to stay. The big five techies and more will enter this market, and it will not be with standards-based technology. You already saw Salesforce acquired Slack. Amazon is already here with their Chime technology.
Facebook is looking into how to come into the enterprise market. Tencent happened to have 30% on market share already in Asia. Dropbox are adding on working together in documents, adding chat and others, and we'll see this developing going forward. The third uniqueness and opportunity for here is that Pexip has an independent approach. We are uniquely positioned as a leading technology platform for the choices that large organizations will make over the years to come. They will need to take many more decisions on how they're gonna set up all the technologies item. Video is our core business. It's not the entire productivity applications. It's not gathering data and selling it on. It's not selling compute or even selling switches, which some of the competitors are doing. We have an independent approach.
For these three exact reasons, Pexip is uniquely positioned to be a major player in this market. In Q3, we also spoke about BMW.
Exactly. We are very, very excited about video infrastructure, and that's a use case that you, guys, investors really understand because the, again, the use case is quite simple. Being able to connect incompatible protocols together.
Mm-hmm.
Leverage, you know, our differentiator around technology. It is a lot more to us, though, than just, you know, solving that use case. Take BMW, I think, Åsmund, you talked to it in Q3. Great logo for us. What happened with BMW is essentially they needed to connect their incompatible Cisco endpoints towards, I believe, Teams.
Yes, correct.
We went there with Microsoft, actually talked through their needs. Through talking to them, through talking to IT and the CIO, we realized as well that they had a different need in terms of video conferencing. They need to be able to talk to their latest and very, very special design.
Sure.
Something that they want complete privacy upon. Whenever they have a chat between designers.
Mm-hmm.
They need to have it closed on their network, not on the internet, very, very secure. That's where we could engage with them on critical meetings. What is critical meetings? It is our second big core market. Again, good story about BMW, moving someone, a logo from video infrastructure to critical video meetings. The use case here is actually quite simple.
Mm-hmm.
If you have high-stakes meetings, and you need privacy and security, this is what we call critical meetings. What we sell here is a complete solution. It's very much targeted at government, of course, because they always have that need of sovereign privacy and security, but also at large organizations like BMW, who actually have some collaboration that they can do in the cloud on the public internet within, you know, that single grid that we are talking about.
Correct.
They also have very special high-stakes meetings that they need to take differently. On that front, we provide basically the perfect solution with an on-prem self-hosted grid like I was talking earlier-
Yeah.
That is completely private and allows them to host those meetings. Again, I'm not gonna talk a lot more again about it, but this is where our agnostic infrastructure, our decision that we took 10 years ago is shining and where our other players, competitors and partners can't really solve this with their existing architecture.
For this segment, that fits very well, right?
Absolutely. Perfectly. On that front, I think, Åsmund, you're gonna take us through what is the opportunity here really.
Absolutely. The market for critical infrastructure is growing. According to Gartner, attacks on organization in critical infrastructure sector have increased dramatically from less than, I believe, 10 in 2013 to almost 400 in 2020. That's a 3,900% increase by the way, but anyway. The market for critical infrastructure is moving. Let's move over to the U.S. and talk about one of the larger Pexip customers in the critical meeting segment, a Q3 win for Pexip, by the way, called DISA. Over to the U.S.
Hi, I'm Jordan Owens, VP of Architecture for the Americas here at Pexip.
Hi, I'm Peter McCarthy, and I'm VP of Sales for Public Sector here in the Americas.
When it comes to critical meetings, it's important to translate the technology and the features that we just talked about to the real customer value proposition, and there are four key areas that we need to focus on. First and foremost, it's really all about quality. Now, quality is obviously both about the video and the audio quality in the meeting. When someone's talking or we're looking at someone face-to-face, it's important that we can see, hear, and judge their reactions to the content that we're talking about within that meeting. But quality is also important when you look at it from an interoperability perspective. We need to deliver the highest possible quality across the plethora of devices that users will leverage in order to join the meeting. That could be simple web browsers, mobile devices, tablets, PCs, Macs, even video conferencing systems that sit inside conference rooms.
Across all of those devices, quality must be the best that it can possibly be and must meet the user at the device itself. The second most important quality here is that of deployment flexibility. When you think about it from a critical meetings perspective, a meeting that must work each and every time, customers need the flexibility to deploy the system across whatever modality they ultimately want to leverage. Some of our customers wanna run this entirely within their own premises. They wanna use physical servers inside of their data centers so that they can control the access across the board. Other customers wanna leverage all of the cloud compute methodologies that are out there in the market today. That could be Microsoft Azure, could be Google's compute platform, could be Amazon Web Services. They get the flexibility to choose.
Yet even more customers need a hybrid approach where they want some equipment on premises and some equipment in the cloud. Only with Pexip can they achieve all three of those modalities independently of the rest and adjust them as their needs change as well. As they wanna move into the cloud or back out, they have the flexibility to be able to do that. The third most important aspect is branding and customization. Because the reality is when you're meeting within the organization for the most important meeting, you don't wanna meet on a Pexip meeting, you wanna meet on a DISA meeting or an insert bank name here meeting or whatever the case may be. This isn't about a Pexip use case, a Pexip product or Pexip the company itself.
This is about making sure that the users within the customer organization know and feel comfortable that all of their data is protected and that all of the information that they share is secure. Now, the fourth pillar that we need to talk about today is that of security. Now, security is really table stakes these days. Every organization out in the market is talking about how their solution's secure, and they provide the best encryption, and don't worry, the meeting itself is secure. Security goes beyond the meeting. Yes, absolutely, encryption within a meeting is important. Making sure that users within that meeting feel comfortable and can share the data that they need to share within a critical meeting is super important. Security goes beyond the meeting to the organization itself, to the certifications that the software and the solutions themselves need to go through.
This is an area where Pexip leads the game. Not only are we a certified organization to make sure that when we handle confidential and private data, we protect that confidential and private data as if it was our own, but we also put our products and our services through rigorous certification testing. Things like JITC testing, which is extremely important to the DISA example that we'll talk about here in a second, and other certifications around the world that are important to the customer base, so they feel comfortable that when they host their most critical meeting, the data they talk about, the data they share, and the conversations that they have are kept secure and private to the meeting itself. Now let's take this conversation a step further, because when we talk about it in a customer use case, it all comes to life.
Peter, why don't you go ahead and walk us through DISA? Who is DISA, and why did they choose Pexip for their critical meeting solution?
Yeah. Thanks, Jordan. There's probably no better example of critical meetings than DISA, and DISA stands for Defense Information Systems Agency, and they're a global IT support organization for the U.S. military. More specifically, the group that we're working with is called GVS or Global Video Services. The entire group that makes up DISA includes over 7,000 military and non-military personnel. As you can imagine, working with the U.S. military, as Jordan said, security was paramount as part of this process. DISA put us through a rigorous set of tests over a course of over a year, and I'm happy to report that we passed with flying colors. In addition, as part of the security element, the secure deployment of our software was a big part of why DISA selected Pexip in the end.
We were able to deploy our software both in Amazon's secure gov cloud as well as on-prem at DISA's secure data center facility. One of the other unique things about Pexip that DISA really liked was the fact that we could handle multiple military networks. They have both classified and unclassified data going across these networks, and it was very easy for them to take our software model and basically use it throughout. In addition, they were able to create an entire third network just for disaster recovery. One of the other things that was absolutely crucial, as Jordan had mentioned, is interop. Interop, there was no bigger place for interop than at DISA. With over 65,000 desktop devices and 7,500 video conferencing devices, interop is one of the most crucial elements of our solution. Finally, Microsoft.
Our relationship with Microsoft and our ability to easily handle interop with Teams was a very important element to the decision-making process, and we expect that is gonna continue to grow given the sizable deployment of Microsoft in the U.S. military. In summary, we are both excited and grateful to have DISA as a customer, and we are up for the challenge to continue to support them, and work with them and ultimately support the U.S. war fighter.
Now, when you think about critical meetings, obviously it makes all the sense in the world to talk about them in a government use case, whether that's Department of Defense use cases, whether it's intelligence agencies, whether it's just non-DoD-centric use cases. Government is certainly a key vertical in this conversation of critical meetings. The important thing to think about is that government's not the only vertical where critical meetings are important. Banking, finance, those are two verticals that are really important in a critical meetings conversation. When you think about it from trading floor applications, there's a customer here in the United States that uses Pexip as their trading floor meeting solution.
Individuals that are on the trading floor itself, when they have stock conversations they wanna have, the transactions they want to enact, they call into a Pexip critical meeting in order to have that conversation based on the very key tenets that we just talked about. Police departments, another perfect example, where organizations such as NYPD and others use Pexip as the meeting platform for their most critical, their most important meetings that they have internally. Why do they do it? Again, it comes back to those four key tenets that we just talked about. At the end of the day, the idea and the application of critical meetings is one of growth, and we're really excited to take the DISA use case, the NYPD use cases and others, and expand upon those into new customers and new opportunities going forward. Thank you once again for your time.
We really appreciate the the opportunity to talk about DISA and critical meetings as well, and we look forward to connecting with you all soon.
Thank you, Jordan, and thank you, Pete. DISA is just one great example. Pexip enjoyed many major wins in this segment, like the European Commission. You just heard Jordan talk about the NYPD. We have NASA, we have GSA, Ministry of Justice, and many more. The opportunity is so much bigger. Pexip is finding great success in ultra-secure meetings globally. In the Americas, we find success in delivering highly secure private platforms to military and government. Pexip is also becoming FedRAMP certified to be able to deliver to a sovereign cloud service, a service only for these federal government organizations. In Europe, the same opportunity as in North America, but in addition, we see that privacy, security, where does my data go, is increasingly important to large enterprises, as well as government and public sector.
We already spoken about Shell, Volkswagen, BMW and others, where this is of the highest importance. In Asia-Pacific, we continue to be strong in the military sector in multiple countries. Nico, why are Pexip a unique thing for the critical meetings?
Yeah. Again, super exciting to see those logos and to hear more about the use case. I will go back to the beginning of the conversation.
Yeah
which is a question you always ask us. What is it that's makes you guys so different that competition or partners can't be doing this themselves? Again, I'm going back to the core transcoding story, being able to do it on the server side in the network is core to be able to to deliver to these guys. Again, the grid, the story of the grid, being able to allow DISA to basically build and run their own grid is completely unique. Again, this is an architectural decision that we took from day one and that our partners in that sense can't do. Again, to re-highlight, this is not just about the privacy, it's also about the customization and the branding.
Yes.
Those guys, they do not want really to see the brand of the vendor. They want to be able to actually expose their own brand, but also they have workflows that are slightly different from the typical video conferencing collaboration, right?
Mm-hmm.
Our platform has been built in a way that allows them really to change that workflow easily, and that fits very well their use cases. Again, the customization and the security, top of mind for them.
Mm-hmm.
What is it that we deliver to the CIO? Well, we deliver a set of tools end-to-end, where they can really, within a click, look at where is my data flowing.
Mm-hmm.
Where is my data stored, is there any alerts, is there any breaches? It's very, very security-minded and very much minded towards those critical meetings, CIO, users in a way, and administrators.
These kind of meetings is certainly much more monitored than a generic.
Absolutely.
meeting, right?
Absolutely.
This is important to them.
White glove is-
Exactly.
Definitely some of what we see for those use cases.
Mm-hmm.
For the end user, what is it that we deliver there? Well, we have a complete end-to-end Pexip offering. Even though we do have our great interop story, where they can connect existing equipment and software towards our critical meeting, some of them, especially the governments, really want to basically consume Pexip and Pexip only because they can they are guaranteed that the data only flows within their walls, right? We basically deliver them mobile, desktop, and meeting room set of applications and experiences. Also, we do have integrations towards their usual calendar offering that they use and so on and so forth. Of course, and I will come back to this later with NVIDIA, we do upgrade anything that they run within those calls.
Mm-hmm.
to the latest and greatest AI capabilities.
Yeah. I know for a fact that the U.S. Army, as an example, is using the entire stack here from Pexip, not only the interoperability story and the security side of it, but they're utilizing Pexip on mobile apps and so forth.
End-to-end. Absolutely.
Mm-hmm.
Yes.
Good.
Another great example for governments is the Council of the EU, where essentially you do end up with maybe the most white glove meeting that you can have. You have up to 27 languages being spoken at the same time with, you know, live translation and transcription. You have basically as many different kind of hardware, because essentially, you know, 27 countries cannot agree on what equipment to use. This is where, you know, our interop story really shines as well. Allowing, you know, Italy to use whatever they use, France, Germany, and so forth and so on, is very important. Again, I will come back to the flexibility. We allow them as well to basically build the workflow they need. They have very tight.
Mm-hmm.
Agendas. They don't need added, you know, complexity. They need the technology to work with them. That's where basically the Council of the EU built themselves on top of what we offer.
Mm-hmm.
A set of plugins and various features that allow them to run those meetings in a perfect manner.
In this call with Merkel leading, it's not only she is seeing all the other participants, right? Translations going on-
Absolutely.
with procedures and stuff like that.
Yeah.
That's pretty cool.
Yeah. On that front, I think we covered sort of the use case by now and what customers need. I guess back to what probably our investors are wondering here, what is the actual opportunity for us going forward here?
If you look at the future opportunity, according to Gartner, governments across the world are now realizing their national critical infrastructure has been an undeclared battlefield for decades. They're mandating more security controls for the cyber-physical systems that underpin mission-critical efforts and increasing their national security efforts to counter attacks on critical infrastructure.
Mm-hmm.
I think this might even be the way going forward if there's ever gonna be a new war as an example. The opportunity for growth in the market for critical meetings is accelerating. It's not only defense.
Mm-hmm.
It's not only military, or it's not only government institution, but a booming need for IT services, financial services, energy, and commercial facilities. Pexip is extremely well-positioned with the unique benefits to be able to grow in this market. Security and critical meetings is also of importance to BMW, right, Nico? We'd love to talk about BMW today. They have a good example here.
It's the logo of the day.
Yeah.
Definitely. We talked about how customer journey with BMW, right?
Yeah.
Started with their internal collaboration needs with infrastructure.
Mm-hmm.
They need to connect those equipment to Teams. They came to us for the critical meetings. They wanted their high-stakes design meeting to be very secure. That's something only us can do. That's what we talk about just now, critical meetings. The next stage with them, and that's something we are doing right now, and you can come into this in a second, is video enablement. How to enable. They have a digital experience online already.
Mm-hmm.
Where you can customize your car, you can see how much it's gonna cost, and maybe even order. Of course, that comes with complexity.
Mm-hmm.
Being able to talk to a human has to say there, right? We're talking to them.
Absolutely. They already have what they like to call trade shows or trade stories, trade floors online.
Mm-hmm.
We're also talking to more divisions within BMW when it comes to BMW financial service, which basically acts like a bank.
Mm-hmm.
They have an insurance arm, et cetera. You will see more of the video enablement going forward.
Right. The keyword here is Video Enablement.
Mm-hmm.
I'm gonna skip straight to the next slide, which is what is the use case for Video Enablement. Essentially, any large organization, could be government, could be private, having to offer physical services.
Mm-hmm.
They have already gone through that digitalization stage. They're offering already some sort of service online.
Mm-hmm.
Very often, there's no way for you to actually talk to a human being at some point. We've seen that already for quite some time in web banking.
Mm-hmm.
Nowadays, there's not a single bank that doesn't have a button say, "Talk to your advisor or book a meeting," and then you get to talk to actually someone. We see, especially with COVID, that virtually any sort of large organization at this point is trying to get video enabled.
Mm-hmm.
within their digitization. That is the use case here. We come as Pexip helping them through digitization to add video on top of whatever service they are trying to sell or to deliver to their users and customers.
Mm-hmm.
Our platform here, we call it the Video Enablement Platform, is actually tailored for these customers to be able to just drop it there and get great video experience from it. I will, and I think this is for the last time, repeat over and over again why we think we are unique in this space, when we know we are unique in this space. It's again, because of the architectural choices that we made early on. Being able to have, again, the privacy through that private grid that I talked about. Healthcare, they want data to stay within their country very often. Especially within the EU, Germany is very strong there. Health data has to stay within Germany.
Mm-hmm.
Very strong requirement there. The other one that has been quite incredible for us is this choice of being able to license the technology without necessarily selling you the end product. Which means we've seen partners of ours being able to actually build their own applications, and I'll come back to this just based on our core engine, our core technology.
Mm-hmm.
Those two pillars are completely unique, and that's why we have such an edge within video enablement. Of course, that has actually impacted our business as well. Especially, you remember, Øystein talked about it.
Mm-hmm.
COVID did change the landscape of video conferencing dramatically. For us as a business as well, instead of going to customers and talk only about video meetings, only about video, now we can actually talk to the next stage. Øystein talked to this. We went from being only about meetings to now being about missions.
Mm-hmm.
This is very important for video enablement.
Yep.
Because when you talk to healthcare, talk to judicial, essentially, the decisions that are being made over video are basically life-changing decisions. If the technology is not perfect, if the technology goes between the doctor and the patient, it can have a major impact.
Mm-hmm.
That's why we want to see our business now more as a mission-related business than just a video meeting business. On that front, this is where we see our world right now within video enablement. Because of where we are as a company, because of the growth we want to achieve, we need to be very focused. This is why we are focusing within video enablement to help those sectors go through that digitalization to be video enabled. We got judicial or virtual hearings. That is an incredible use case, especially when you touch on society. We have online public services, tax offices, various healthcare related things as well.
Of course, telehealth, both from the public and also the private sector. The two last ones I will come back to a bit later.
Yeah.
Online retail and web banking are a lot more around sales engagement than they are about just video enablement, but we'll touch to that a bit later. Now I think we're gonna see a quick video on telehealth from our team down in Australia, which I find very exciting.
Thank you to our Australian team and also to this great customer of Pexip, NSW Health, which has put this video together. Telehealth has so many perspectives to it. In Denmark, there is a customer of ours called MedCom, and they've been a customer with us since 2013, and been basically growing year-over-year. Over the last two years, it has basically exploded for them with a doctor-patient appointment with more than 60,000 of them per day. That is on the level of the biggest customers we have in North America, so it must be not only a Danish record, very close to a world record. MedCom has fully utilized our open APIs and have developed multiple new solutions for healthcare in Denmark, where Pexip is the core engine.
Solutions like Hey Doctor, which enables doctor-patient consultations, ambulance services with links to click on from SMS to assist in emergency situations, as well as rehabilitation services over video. This has basically just boomed over the last two years. Open APIs also enable customers to tailor-make and integrate the video engine or the video platform into their existing workflows that these customers already have. By using the Pexip technology, customers like MedCom have the ability to do remote patient monitoring and making sure their workflows become digital. It's crucial for these kind of customers to integrate the solution with patient files, with patient flows, like waiting rooms, multiple experts, transfer to other expertise, and that is one of the major reasons for healthcare customers around the globe to choose the Pexip solution. Since we are on video enablement, let's talk about online public services.
Let me try my German here, but the Bundesagentur für Arbeit, BFA, or here in Norway we call it Nav, is a typical government service institution, like you spoke about, Nico, that started the remote consultancy service way back in 2019. It's been built with Pexip as the main engine again and tailored to BFA by a German Pexip solution partner called Voigtmann. BFA basically had three main requirements. Access and usability. It needed to enable clients to join remotely, either from home or on the go, and that they had a requirement of maximum three clicks from any device and without any downloads. Security is of course important for a government institution like this. It needed to comply with BFA's very high security and data protection requirements. It needed to be GDPR compliant and data hosting, which is government regulated and restricted in Germany.
In addition to, of course, the security of the employees of BFA. Thirdly, integration. Enable secure video, chat, audio and data, as well as integration with existing workflows, resource management, invitations, reminders, inquiries, analytics and statistics, documents and file sharing for BFA. Eventually, the BFA main objective was to provide a better service and make themselves and their service more accessible to their users with, of course, higher efficiency. The ultimate goal is to make the unemployment rate go down. BFA had used Pexip open APIs, integrated at this third stage with Skype for Business, installed it on-premises for their security reasons, branded it a BFA solution, so anyone using this looks like it's only their solution, even though Pexip is the engine.
Adhere to government rules and regulations, and made a remote expert solution that just works with any technology out there and without any downloads.
Essentially they do leverage most of what differentiators we are discussing so far.
Absolutely. I think they're almost ticking all of the boxes.
All the boxes.
Looking at their success rate then, Nico, the numbers actually here speak more or less for themselves. 73% preference rate to use video next time, those who just tried it for the first time. 87% thought it was easy to use, and 95% would recommend video consultation to others. In addition, BA see that usage is just peaking with the stats that you see now on the screen. This is no longer just about meetings. It's about the most important mission for an organization or a business. In this case, customer development. You can imagine the possible scale of these use cases. Again, this is a Pexip unique integration and solution. Further on in video enablement, let's go to virtual hearings. Her Majesty's Courts and Tribunals Service, a project that started before COVID-19 with a couple of main objectives.
Number one, increase efficiency. These government institutions are continuously looking into this. Save costs, reduce backlog of court cases, and reduce the enormous society cost that is attached to that. Enable hearings that could not else have taken place, and have support for both virtual, physical, and hybrid court hearings. Requirements were integration to existing court flows and authentication systems, so they didn't want to redo it all over. Needed to apply to what they were already doing. Tailor-made integration to build trust with the users. That's important to them as well. Accessibility, again, no downloads, not having any limitations on the technology. It needed, of course, to be secure and compliant when it comes to court cases, and it needs to have the possibility to scale.
Mm.
The solution in this case is actually developed together with a Pexip partner called Kinly. Them together with us have been tailor-making this to them.
Maybe something to add on top of that is the use case here is not just, you know, a video call.
Mm.
You need to have a quite distinct specialized meeting where when there is a witness, you might have to hide someone or to not.
Exactly.
To not allow someone to talk, right? Again, here it is so important to look at it from a mission point of view.
Mm.
More than just from a video meeting. That's where we differentiate very much with our other players in this industry for sure.
Absolutely. Let's deep dive on some of these details. It's fully integrated solution with our APIs. I think they're again utilizing almost all of them. It's real live court process, right? Including scheduling, identification processes, waiting rooms.
Exactly.
defense to defense, witness to support, judge hearings, anonymous witnesses
Mm.
which is important to them, recordings, workflow automation based on different kind of court cases. If it's this kind of court case, this is the setup. Different kind of court case.
Mm.
There's a different setup. Making basically a physical court hearing even better when it's digital. Security, of course, of the highest importance for personnel, for employees, for witnesses, and for prisoners, as well as, of course, the data privacy part of it. Redundancy, if there are trouble on the technical side. Support of more than 3,500 video conferencing systems installed in the different courts around the U.K. Having a digital court system gives access to witnesses.
Mm.
Reduce transport of prisoners, and it's been difficult to get them into the courts. Her Majesty's Courts runs more than 4,000 cases virtually every day. Imagine the reduction in backlog and savings in society costs. This is, to me at least, Nico, exactly why we built that Pexip Inside platform. Let's move on to maybe one of the most exciting use cases on this from at least an outside, but I think the court one makes a lot of sense as well.
Absolutely.
Heerema and remote engineering.
Yes.
Let's deep dive on that.
Yes. Sorry, let me go one more back. That one is very interesting. We talked about it at the beginning of the talk, where we decided to basically license our technology for other partners to be able to build their own applications, right?
Mm.
Again, we don't want to enter every single market. We want to be able to enter the ones we really believe we can scale in.
Mm-hmm.
there is tons of opportunities in other markets that we want to be able to be part of. Our way of doing this is basically to license our technology to partners who are already within that business-
Mm.
or have the core skill set to be able to be successful within this business. Heerema is a good example here. They have basically, It's energy. They have essentially a lot of need for what they call remote engineering.
Mm.
Which I will cover in a bit. This is where we met, one of our dearest partners, SimplyVideo.
Mm.
They are specialized basically in remote engineering. What is remote engineering? Well, it's basically being able to help an expert that is physically on site.
Mm.
with various devices so that they are allowed to achieve whatever they achieve. Remember, if you are in a very hostile environment, having the right tools can make a huge difference, right?
Mm.
They are specialized in, you know, running drones, underwater, ROVs, microscopes, thermal imaging, medical cameras, and so on and so forth. What they're doing is, like, essentially all of those equipment have either a camera or something that is close to a signal.
Mm.
It allows them to essentially bring this back to the expert that sits at HQ, for instance.
Mm-hmm.
As you know, you might need to use 20 or 30 different kind of experts.
Mm.
In terms of cost for Heerema, it's great to be able to have a physical person that has goggles on and transmit whatever they need to do physically on the platform or wherever else to the expert that sits at HQ and being able to help them in a meaningful way. This is where also we've been seeing changes the last year also with mixed reality and assisted reality, where it's possible to actually help the skilled person to do their job through the use of AI.
Mm.
Super exciting. Again, this is a good example of how our technology can be licensed and resold in a way, and we can enter use cases where we don't have to necessarily do the development on the end user application. Wrapping this up, we talked, you talked quite a bit about virtual hearings, public services, telehealth, and so on and so forth.
Mm-hmm.
There are two that we didn't talk too much about.
Mm.
We talked a bit about BMW, right? Online retail and web banking are a bit special for us.
Yep.
Because it's not so much just enabling the service, the digital service, but it's also basically going to the next level, which is sales engagement.
Yep.
For that, we announced something that we are very excited about. Last quarter, Pexip acquired Skedify, and I'm gonna spend the next maybe two or three minutes to talk about Skedify very quickly. Skedify is essentially a sales engagement platform.
Mm.
Think about it that way. You are a big, say, insurance company, and you already sort of sell through your web pages some of your services.
Mm.
Of course, you need to be able to actually have a salesperson to talk to a customer. What Skedify has built is a very easy, basically drop-in plug-in within the webpage of, say, AXA in insurance, for instance-
Mm-hmm.
-which is a customers of our-
Yeah.
one of ours, by the way, using Skedify. Where on AXA you can schedule your meeting, pick an advisor or be dedicated an advisor, and then receive either a video call or a meet in person at the branch.
Mm-hmm.
Now, that sounds very simple. The really exciting part is around CRM and CMS integrations that Skedify built.
Mm-hmm.
For the ones not knowing what a CRM is, it's a customer relationship management system.
Mm-hmm.
That essentially allows sales forces to get organized and to be more efficient. You've been, many moons ago, a sales manager and sales leader. These days, what is a CRM and why it is so important to have great integrations?
Good question. Besides sounding very old, I think I've been in sales management for 25 years. Anyway, CRM is basically where you as a salesperson or you do any kind of sales thing, that's where you live and breathe. That's what you open the first thing in the morning and so forth. Having integrations here with the what Skedify provides-
Mm-hmm.
so that you could easily. One thing is when I'm available, but also when should I follow up my customer, where do I meet them? What did I say?
Mm-hmm.
Getting analytics and statistics on you know what? An online meeting actually worked better. I sold more or less, et cetera. Getting those data into sales management and sales enablement is fantastic. Again, it's the mission. It's beyond just the video meeting. It's actually what you get out of these solutions.
Exactly.
The cool thing with Skedify is that they built both what happens before and afterwards with the Pexip at the core.
Thanks to Skedify, basically, essentially, we're very much entering the sales engagement side of things.
Mm-hmm.
Sales engagement, like you said, is being able to, you know, look at as a manager, to look at Salesforce and see how good you're doing, how your sales are doing. This is where as well we get quite excited too, on the AI front.
Yes, please.
We talked about this for now more than a year. We have a very good relationship, partnership with NVIDIA, where it's an engineering research partnership, so it's not commercial to some extent. It's very much engineer to engineer. With them, we look at AI and what they are doing in this front. For the last year or so, we've been very good with them to just, you know, improve video, improve audio, and just improve the meeting experience. But now with that new wave of sales engagement, we have some use cases that we are super excited about. A few months ago, I think we presented IKEA to you guys, a customer of ours. What IKEA is that on ikea.com, you can go and essentially book an appointment to design your kitchen with an advisor.
Mm-hmm.
There, the advisor will be on video, and this is where we are actually quite excited as well about how we can use AI to improve the sales engagements of IKEA. For that, I have my dear colleague, Tadier, that's gonna be a quick demo here, where he's an IKEA kitchen reseller and gonna prove you how AI-
Wow.
can really
I'm looking forward to Tadier being an IKEA salesperson. Go, Tadier.
Continuing our conversation after you've given us the measurements and color preferences that you would like for your kitchen for you and your family. We think this is gonna be a perfect kitchen for you. What we supply is a complete package where we do all the install. We provide technicians to do the sort of final measurements.
That's really the magic moment we are discussing maybe now an hour ago, where within those 150 milliseconds, we are able to improve.
Mm-hmm.
The use case dramatically. This is probably sales one-on-one. You need to be able to look at a person in the eyes to be able to be engaged. Yes, it might look a little bit creepy now and then, but being able to actually fix the look so that the sellers are able to look at you in the eyes actually improve dramatically the engagement with the customer.
Mm-hmm.
Another one that I am excited about is around more of the rest of what NVIDIA has to provide.
Mm-hmm.
We are working with them right now on what's called live transcription. It's being able to analyze what's being said by either the customer or the salesperson in live.
Mm-hmm.
That allows us, for instance, to give tips to the seller, but also back to the CRM, being able to judge with more metadata, more content, how the sales has been going and what should be the next steps. Again, AI, we're still gonna do a lot around improving audio and video and the media, but we are already seeing great applications towards our three core markets.
Mm-hmm.
Super excited about what we can do going forward with video enablement.
Just on this one, I think that actually a question from me to you, Nico. Do you even foresee that, yeah, salespeople as one thing might even prefer to do their sales pitches on video because they look better, they get feedback from-
Absolutely.
from the customer.
Yeah.
They have more access to documents and so forth.
You can imagine easily that you know AI can help you as well with translation, being able to.
Exactly.
Help you if someone doesn't necessarily understand use case. Really exciting moment for us in terms of what's achievable. Again, big kudos to the team at NVIDIA as well.
Mm-hmm.
It's been delightful to work with them, and we're looking forward to productize a lot of this.
Mm-hmm.
Video enablement, going back to the why Pexip, again, it goes back to our very differentiated, architecture, agnostic infrastructure, private grids for telcare, for governments and so on, really important, but also built as a platform, being able to resell, to license that engine for other partners to be able to build their use cases, but also for some, great big players like the VA, for instance, to be able to build their own portals, right? On that front, sometimes it sounds like licensing the technology is something that requires, you know, an army of 20 people to build something on top of. We have built API and SDKs, a bit like Twilio.
Mm.
that allows you to actually build your own application on top of us. We think that it's probably the most easy get to market-
Mm.
Guest experience, you talk about it. Guest experience is so important because you don't want to have to download anything.
Mm.
You want to be able to get in there and just get your call with your banker, with your lawyer, or with your doctor and just be gone within minutes. Technology shall not be in between. Important here. Finally, AI. We talked about AI. Super important that going forward, we can very much leverage, AI to actually improve those use cases, not just with video, but more.
Mm.
More things. All right, we are getting to the end of this section. Just this is a quick summary again on the Video Enablement. Those are the segments we are focusing on.
Mm.
Even though some other of our partners are using our technology to build stuff on, this is very much where we're focused right now. We're wrapping up on this slide before welcoming Øystein back on stage. We looked at the technology and something, I guess that we should leave you guys with is that our technology, the technology that we built 10 years ago, is highly differentiated, and it allows us to actually solve use cases.
Mm.
That our partners, competitors, and other players in the industry are not able to do today. This is the reason as well why we go so well with Microsoft and others, is that this very differentiated technology allows us to do very differentiated things.
Mm.
That's gonna be the case for the next five, 10, 15 years for sure. On that note, we will welcome again our CEO, Interim CEO, Øystein, and also Ingrid on stage. Thank you very much.
Thank you.
Thank you, Nico and Åsmund. Really a great thanks for taking us through our technology and how it plays into our target markets. I believe that we will now take a break, and we will see you back in a few minutes. Welcome back from the short break. What you will all hear about now is our business plan and how we intend to execute on that plan. In that, our people and our culture is a key piece of what is going to get us there. Ingrid will join us on that in a short bit. First, in terms of our business plan, it's built on a close to 10-year-long track record of running and growing a profitable software company.
In our initial years, we raised a total of $25 million, and we used that capital carefully to build NOK 47 million ARR by the end of 2019. At that time, we saw that the market potential was huge, and so we raised capital in May of 2020, just in time to hit the wave of COVID-19 and the explosion in video usage. The capital we are deploying to take the next leap on our growth journey, which will help us to return to profitable growth during 2023. On this slide, you have the estimated market size, Pexip's existing ARR, growth and churn over the last 12 months, as well as the typical customer size for each of our core focus areas.
I'm excited to share this because each of them are significant markets with strong performance from Pexip, and we expect them to grow healthily towards and beyond 2024. Of all of these, we see video enablement as the largest market opportunity, as digitalization using video will transform process after process in the years to come. For Pexip, video infrastructure remains the largest area with an ARR of $58 million and growing strongly at 54%. It has below average churn of 7%. Critical video meetings is the segment growing the most for Pexip, growing at an incredible 160% over the last 12 months, although from a smaller base. This is driven by mass adoption of video that also is impacting how critical meetings are being run.
These customers are on average larger than the customers on video infrastructure and have lower churn. Video enablement is also growing quickly, with telehealth being the most important vertical for Pexip, but also seeing strong uptake in government services, financial services, and retail. This segment has grown 90% over the last 12 months and has a low churn rate at 3%. These customers are Pexip's largest customers, around $400,000-$600,000 each for the typical customer. Critical video meetings and video enablement both has tremendous potential for Pexip. However, both are still emerging areas. By the end of 2024, we expect critical video meetings and video enablement to together combine for more than 50% of our ARR by the end of 2024.
I also have to make a point around other areas which for Pexip consists of cloud video meetings in competition with Teams, Zoom, and others, on-premise video meetings for general meetings within enterprises, and other smaller revenue sources. We have seen a huge shift in our product mix over the last 12-24 months, which is apparent in the revenue development for other areas. This transition into the pandemic has been an incredible growth driver for Pexip, especially in video infrastructure, but it has also reduced our ability to be the main, video platform for the generic enterprise and the generic use case. That we as a team have maintained our growth rate at 37% over the last 12 months in the midst of this tremendous change is something that we are very, very proud of.
As we complete this transition, our ARR will be within our three core business areas, where the underlying performance is excellent. Looking at performance by customer size, this reinforces the previous trends. We are focusing relentlessly on our largest customers, and it's in this segment where Pexip really shines, relative size, growth, and churn outperforming other segments. It truly is in this segment where we shine, and while we are proud to have close to 180 customers in this category, the opportunity for us is radically bigger. Now, as we are approaching 2022, we enter a new phase of our investment plan. So far since the IPO, we have invested heavily in growth across sales and R&D to drive future growth, as we have now set out to capitalize on.
Now in 2022, we enter a phase with a more normal investment level, which together with continued ARR growth, will improve profitability and help us return to profitable growth during 2023. The investments we have made the last 18 months will help fuel our growth over the next three years. In order to get to $300 million, we need to average at a 40% growth until 2024. With our track record on growth, the investments that we have done, and the incredible opportunities in our core markets, we feel confident in our ability to do so. Over the last 12 months, we have grown our revenue by 36%, and we have a gross margin of 90%. If we adjust for our accelerated investments to a more normal growth level, our EBITDA would be at 25% already today.
We have gone for a more aggressive growth strategy, investing over NOK 275 million in growth over the last 12 months. These are investments mainly in people in sales marketing as well as in R&D. It's this investment that will drive our growth to $300 million and beyond. On this page, we show the main business drivers over the past few years and our long-term ambitions. We have shown consistent revenue growth for a number of years, and over the next three years, we aim to have 40% growth. Our investments in strengthening the sales and marketing capabilities and introducing new products will fuel this increase in revenue growth. On gross margins, they have declined somewhat as we have increased the share of cloud services, as well as strengthened our platform to deliver cloud services in a scalable and more resilient way.
As we continue to scale our existing services, we will see a scale benefit in cost per revenue while adding more AI capabilities that Nico spoke about earlier will positively impact revenues, but it will also require more compute, which is why our long-term outlook is around the current level. On salary costs, this has seen the largest impact from our growth investments, increasing from 51% of revenue in 2019 to 79% over the last 12 months. As we move into a more normal phase of investment, this will help us reduce this to the 2019 level and below by 2025. On other OPEX, we see that we are able to capture some scale effects, mainly in the cost of IT and obviously benefiting from lower travel costs in 2021.
Moving forward, we will continue to invest in marketing, but we see that we're able to capture scale benefit in other areas. In total, this will enable us to return to a profitable EBITDA and by 2025, be above 25%. These are the financial ambitions that we execute against. However, to be able to do this is less about the numbers and really all about the team and the culture that will help deliver these results. To give a summary of our focus on culture and people, I welcome Ingrid, our Chief People Officer, on stage. Welcome, Ingrid.
Thank you, Øystein. From the very beginning, the founders of Pexip had a strong passion for people and culture. They knew that done correctly, a healthy company culture can create high-performing organization. Today, we are still in the early stages of what we would like to achieve, as you've heard Øystein and the other presenters today. Our great success and our future goals are all executed by people. Pexip is a small company compared to our competitors, so we need everyone to work smarter and have a mindset of value creation and impact in everything we do. We're an attractive employer who is systematically building a strong and highly capable team. Our Pexip Way ensures that we're productively and ambitiously working towards our goals, and that we have a strong foundation when we're executing on our strategy. We have built this on four pillars, purpose, culture, people, and organization.
Starting with the purpose. As in any global company, communication is a challenge. With over 500 employees around the globe with very diverse backgrounds and competencies, communication needs to be at the heart of everything we do. With so much diversity and dispersed teams, the need to have a guiding star becomes even more important so that we all know why we're here and what we work to achieve. Pexip's purpose is to make the world smaller and opportunities greater for our customers and users. We want to ensure that people are seen and able to collaborate and engage without having to be physically present. Our primary goal is to help large enterprises and organizations with their business-critical issues, whether it's critical meetings, infrastructure, or enabling them to do their business over video.
Over the past six months, we've pulled together as one team to focus our technology and our efforts within these areas to be a lot sharper, more competitive, and clearer in our communication, both internally and externally. It's been a tremendous project and process to make sure that we're actually doing the right things and that everyone's aligned. The culture. Building a strong and healthy culture that enhances innovation, excellence, collaboration, and ownership has been important since the very beginning for Pexip and proven to be critical to our success. When everyone knows the why and the what, it's easier to see the how. Culture is important because done right, it's a competitive advantage and a differentiator. It's hard to copy. It correlates with performance. It prevents bureaucracy and reduces some of the need for control, and it creates high productivity and efficiency.
The Pexip culture is one of the primary reasons for why people join Pexip. We call our values and the description of our culture the Pexip Way, and we use this as an approach to ensure that our decisions and actions enhance the culture. It's crucial for us as a fast-growing company to ensure that productivity per individual doesn't decrease while the number of employees increase. What about the people? In addition to culture, the people, our colleagues, is another top reason to join Pexip and for employee satisfaction. It's the first, second, and third priority when it comes to people is to hire the right talent.
We need a diverse group of people who are ambitious, passionate, who takes ownership and can work well together, challenging one another in a respectful and supportive manner to be able to achieve more. Our recruiting process is very thorough, and only real talent with a cultural fit will be offered to join the team. We have over the past three years grown from approximately 150 employees to today's 535. The growth has been extremely exciting as we built great teams and increased our competence. We have gone through a period of heavy investment in recruiting, onboarding, and learning, and we have a very solid foundation. We will now grow at a somewhat slower pace and ensure that we take really good care of the people we bring in.
In Pexip, we believe in freedom and responsibility, so we hire the best talent and need to enable and empower them to take full responsibility and ownership for reaching our goals. Self-leadership is a necessary skill and capability for all our employees, and it will ensure that decisions are made out there in the regions and teams by people who have hands-on experience and knowledge. Our leaders shouldn't spend a lot of their time on managing, but rather set direction and inspire people to reach their and Pexip's full potential. Finally, organization. When organizations grow, it's easy to become corporate and bureaucratic. We don't have time for that. We need to ensure that everything we do is value-adding and taking us closer to our goals. The world around us is moving at an extremely high speed, and we need to ensure that we maintain agile and disruptive.
There are, among others, two important areas that we focus on. One is flat structure. We have a flat structure where employees are brought into discussions on topics that are related to them, and they have knowledge about, not because of their place in the org chart. This is to ensure efficiency, engagement, and ownership among our employees. Second is continuous learning. This is important if we are to stay ahead and disrupt the industry. It can only happen if we have curious, ambitious, and passionate employees who seek to renew themselves, Pexip, and the industry. To sum up, Pexip's on a journey. We have, over the past couple of years, attracted a lot of really talented people. We share our professional values with a mindset of value creation and productivity. We have a fantastic team, technology, and culture.
This will allow us to focus on building an even stronger future for Pexip.
Thank you, Ingrid, for that run-through on our people strategy. Before we open for Q&A, I want to give a brief summary of our main messages. First and foremost, we see a massive $5 billion market opportunity in Pexip's core focus areas. While there are further opportunities to expand in adjacent markets over time, for now, we aim to be the number one at our core, video infrastructure, critical video meetings, and video enablement. In those business areas, we have a strong underlying performance, and they account for more than 85% of our ARR. In those business areas, growth is higher, revenue per customer is higher, and churn is lower than our average. As we're entering a new phase in our growth plan, a more normal investment level will start improving profitability in 2022 to take us to be profitable again during 2023.
Our long-term track record and proven execution and proven culture of execution and unique technology leadership will underpin our long-term guidance to be above 25% revenue growth and above 25% EBITDA margin in 2025. In addition to reaching our ambition of $300 million by the end of 2024. Thank you so much for your attention today, and I hope that we have been able to convey some of the reasons for why we are really excited about the time ahead for Pexip. We will cut for a short break as we rearrange the studio, and we will be back with Q&A within a few minutes. Thank you so much.
Welcome back. We hope that you have enjoyed our capital markets day so far. My name is Mirza Koristovic, and I'm the Director of Investor Relations in Pexip. We will now go into the Q&A session, and I will lead you through it. We are pleased to welcome three of the analysts covering Pexip. We have Oliver Pisani from Carnegie, Kristian Spetalen from Arctic, and Øystein Lodgaard from ABG. We will begin with the questions from the analysts before we take on the ones received through the chat function and email. Let's start with Kristian. Do you have any questions for us?
Sure. Thank you. I was wondering if you could elaborate a bit on what's happened in other areas, markets with cloud meetings, et cetera. Like, how did you evaluate your position and investments in this area back in 2019? What happened over the next two years' course? That also takes me to the next question of how good do you feel your position in your current focus areas are for the long term? How do you evaluate the risk of large video providers like Microsoft Teams and Zoom investing heavily in these verticals as well?
Good question. I can take my perspective first, and then I'll let you add on to the first part, Nico. I think what we have seen happening is that within video meetings there was a sort of sudden influx and sort of basically adopting what you had available. I think what we saw is that Zoom had an obvious or strong position into that, having built a brand and timing it well in terms of the spike in adoption, and similarly with Microsoft Teams, which was available to many.
I think what we're seeing now is that it's less of a discussion from moving someone into video, where we need to basically prove that we're the best video solution, but it's more a discussion with the customer on moving them off something that they have over to Pexip. Then you both need to be better, but you also need to be so much better that you can convince them to move off what they have and on to you. I think what we're finding is that we're finding much more success in the other areas than we're finding in the generic use case. It also makes it easier for us in terms of building good partnerships where we are clear in terms of which markets we play in compared to which markets we don't play in.
Yeah.
No, I think that's a very good summary. On the technical side of things, what we see is essentially what, we sometimes call competitors end up being, like you were saying, very, very good partners because we are solving very different use cases from them, and we can help them, to actually bring video to larger companies and just solve in a different manner, right? If you look at, some of the other areas, not just video conferencing, but say, messaging or social media and so on and so forth, it all started with a single application that sort of solved it all. Then people have been asking more and more for specialized tools, specialized use cases. This is very much what we're seeing in our own industry when we went from only meetings to mission.
Now that's where, you know, based on the differentiators that we have and the technology that we have, we are able to solve use cases that those big guys are not able to solve today. We see that it's gonna get more and more specialized. Yes, they will probably enter some of the markets we are in, but then we are always more specialized than they are. As you've seen, today, the technology that we have is just different all the way, right? We are able to do things that they cannot be doing today at least.
Your other part of the question, Kristian, in terms of how do we see this moving forward? I think the answer there is somewhat different between the three different use cases. I think on video infrastructure, Pexip is quite unique in terms of what we do, and there our core competitor is really Cisco. We don't see Microsoft entering that space, nor do we see Zoom engaging much in that. There, I think we have a pretty good position as a both small and independent player because we can effectively work with all of the large vendors and not be a direct threat to any of them. This is really our core, which we have developed over 10 years.
There we feel very strongly about our position, both now but also, moving on. We see that also in terms of the amount of investment and focus that this area is receiving from others. On critical meetings, I will argue that we are the only player that has a self-hosted offering, which is really still developing and expanding and improving. While the others have chosen a strategy which is built on a cloud service, we have chosen a different strategy, which is built on offering a self-hosted solution. That is a very, very different architecture. I think what drives that is that basically you need to build a completely different solution for it to be a workable self-hosted, contained environment.
That's a fairly, I think, fenced off niche that we are really good at, and which hasn't gotten a lot of attention from the others. That's of course something that can change in the future. In that segment, we have a very large head start. Thirdly, within video enablement, there, I think we see basically all players engaging. You can use Teams or Zoom for this. You can use players such as Twilio. You can use your own self-developed WebRTC solutions, and you can use Pexip.
I think the reason why we are successful there is that we've really found the balance between being very easy to customize and to tailor to their unique needs, and still being fairly straightforward out of the box and having a good customer experience without that much deep development. Finding that balance is tricky, and I think that's where we are leading today. It's less about the mass adoption of users and really about being there and being in the account first, which is really our core focus at the moment.
Thank you. That's helpful. Just a quick last one on this topic. It was very helpful with the segment split on the ARR. Will you keep reporting on this going forward? Just thinking about the future transparency and modeling here.
I think that's definitely an area that we are happy to sort of continue to report on. I think whether or not that's something that we do on a quarterly basis or more in updates such as this is not something that we have decided on. Happy to take your input on that. Obviously, we want to in the capital markets be a bit more open and give a bit more detail, but I'm not entirely sure that's helpful on a quarterly basis.
Sure. Thank you. Next question. How should we think about the growth in the video enablement vertical after acquisition of Skedify? Related to that, do you believe the contributions from this area will offset the negative effect from increased competition within infrastructure, which you highlighted in the Q3 presentation?
I think the video enablement space is the area that we both see the largest market opportunity in terms of the addressable market that we can address, and also I think the most exciting area for us, both in terms of the impact we can have on our customers and society at large, but also in terms of what type of business opportunities that we can secure. It is more of a complex sale, I would say. It's for us also a transition into really being focused on grasping all of those opportunities. It's definitely the growth driver that we are probably most excited about, I would say.
Maybe if I can add on this as well, that's where the technology shines the most as well. Our early choice to separate the engine from the product means that we can attack that market with partners, while others are pretty much stuck to build applications based on the use cases of users. We see we are very excited about the use cases that we can take on based on the architecture there as well.
Thank you. That's helpful. My last question relates to durability. You have a target of growing above 25% beyond 2024, and that implies $75 million or more than $75 million in delta ARR per year, which is almost 3x as high as your current last 12 months. Could you elaborate a bit more on the drivers at this point in time? For instance, what verticals are driving the majority of growth, and how do you think the availability of good sellers will be at this point? At what time do you think these verticals will start to mature?
Yeah. I think on the absolute growth addition, I think what you're basically saying is that as we triple the size of our business, we need to triple the amount of growth that we add on every year as well. I think that's what we have shown, that if you look back three years in terms of the development we had there, that's also where we are today. I recognize that we need to continue to develop and add that growth. But there we feel fairly confident in our ability to do so. I think what will drive that growth are these three core areas. I think the market which is growing the most is within video enablement.
The verticals there are, we see great prospects in finance and both in banking, insurance and other industries. I think retail and online retail will continue to be a growing field. I think in Asia right now, there are 1/3 calls or 1/3 purchases that you do online are supported by video. In Europe, that is close to zero. Obviously, having that interaction and having basically a store clerk helping you is a core reason for why we buy when we're in a store. With video, we can bring that experience and that upsell driver into the digital realm as well. I think that we'll continue to see a huge development in the years to come.
Thank you. That's all my questions.
Thank you. We can move on with Øystein Lodgaard.
Thank you very much. I would like to start with a question also on the segment slide that Kristian asked about. In the other areas where we've seen a decline in the ARR, of course, the last area had a very high net upsell. Was that a lot related to these other areas? And how much of that the reduction in ARR that we've seen there is related to reduced contract sizes? Can you say something about that?
You are correct in that a lot of the upsell drivers for us last year was also related to these other areas. We saw that existing customers using meetings needed to upscale quite a bit. Although I think we also saw that in some of the other verticals, especially within video enablement. That was all. Perhaps of the four business areas, that's probably the one that had the most positive impact of upsell, followed then by other areas and critical meetings. In terms of the future outlook in other meetings, I think part of that has been then reduction in contract size, but we've also seen a fair bit of churn.
You see that in the reported number as well, that the overall decline in ARR is somewhat higher than the churn over the last 12 months of customers actually leaving us.
Do you expect this churn to kinda moderate at some point that you're seeing in these other areas? Or are you kinda allowing it to churn out because it's no longer your core business?
I think the truth is somewhere in between those two extremes. While we're definitely wanting to retain our revenue as quickly as possible, in part also by pivoting that revenue over to areas that we believe are more sustainable. Moving customers proactively from when they're using Pexip and they're expressing interest into moving somewhere else, that we retain the video infrastructure piece of that revenue. That's, I think, is our core focus, and we're fairly successful in retaining that revenue. It's not an area that we will continue to invest in product development on. I think it's more a sales and customer success type of battle, and less so on going after it with new features.
There we see we get much better ROI if we invest that time and money into our three business areas where we're finding much more success.
Thank you. If we now think in terms of where you allocate your sales forces and resources currently, too. Of course, your infrastructure is the biggest area today. Are you allocating more resources now toward these other two areas? Or are you still seeing that the growth opportunities is largest in video infrastructure right now, so this is still the core focus? Can you-
Yeah. I think, in part, in terms of resource allocation, in many of these cases, it's the same customer. Within finance, we will typically have an existing relationship with the customer on video infrastructure, and then the opportunity for us is to upsell them. In many of those cases, the relationship is still owned by the same account manager. What we are doing, and within critical meetings, this is even fairer because it's typically a government customer and it's much more bundled, and also, it's the same type of people on the customer side that you're having those discussions with in IT. What we are doing is dedicating more resources to building sector-specific competence and really sort of being really competent on those use cases within video enablement.
That is something that we will dedicate more resources to going forward than what we have done in 2021.
Exciting. Last question from me on APAC. APAC region is, of course, your still your smallest region today. Are you seeing any breakthroughs here? Or are you investing or adding more sales resources to this region? How should we think about the development in APAC region going forward?
I think in APAC, we're definitely seeing positive momentum there from the team that we have built. I think we're there also at this stage now where we, to a large extent, have built the initial team that we need to have the presence that we want, and that it's more a normal development from here on out. I would definitely continue to see that the team that we have brought on are starting to bring in their first successes and feeling optimistic about the outlook from that team going into 2022.
Thank you very much.
Finally, Oliver.
All right. Yes, thanks. Oliver Schüler Pisani here from Carnegie. Thanks for the presentation today. Let me just begin with a clarification question on the slide that everyone's been talking about. In the other areas, where we see the churn of 26%, what is that? What's included in other?
Great question. Three sort of main areas there. You have our cloud-based video meetings, which now accounts for less than $5 million in ARR. That's the most direct competitor with Teams and Zoom and others. You have another portion which is roughly the same size, which is more generic enterprise meetings, but then built on a self-hosted platform. It's a use case that where the value prop of having this as a self-hosted solution is less than in a critical meetings scenario where this is absolutely needed.
The last remaining piece, which is probably more sustainable, is a mix of other revenue sources, and yeah, basically a portfolio of other smaller revenue sources.
Sure. Thanks. I mean, in the video infrastructure, to my understanding, you had some sort of generic meetings there as well in combination with the interop revenue. Do you have sort of an approximate split of those two elements within that bucket?
What we have tried to
Can you-
To do is-
Yeah
To really go after this on a. It's the challenge for us in distinguishing this. It is in fact because this product that we're delivering is, at least for the self-hosted customers, much of the same. It's the same platform that they're running this on. What we have done is to make sure that we categorize on what is the primary use case for the customer. We will continue to allow them to use our meetings within, even if they're sort of mainly built the platform to do video infrastructure. They continue to have the opportunity to have Pexip meetings on that platform if they have smaller teams that need that capability.
It's not really the main use case, and then we group the customer within video infrastructure as opposed to critical meetings, video enablement or other.
Maybe that's clear.
Okay.
I think we haven't been very clear either in the past of what is a critical meeting and what is video infrastructure. Now when a customer basically upsells from infrastructure to critical meetings, we will basically separate them in a way, right? It's much clearer as well for us in terms of what we bring in terms of value to customers, what product they receive.
Very good. All right. Now I think when we stood here last year with you, Nico, as well, we talked a bit about the sort of R&D pipeline. I think you mentioned a new video client as well, which hasn't been launched, to my understanding at least. I mean, could you talk a bit about how you've pivoted R&D resources as well to fit with this sort of new strategy as well, or tweaked strategy?
Yeah. I think the key here is that what we built. The new client that you're talking about is actually gonna be launched towards video enablement. We had seen basically clear signals last year, mid last year that we are getting amazing traction on video enablement and critical meetings, and we could benefit. Again, the use cases are slightly different, right? Instead of tackling collaboration in large enterprises, we're trying really to get that guest user experience to be much sharper, much better. All what we built last year, we basically pivoted it very quickly, quite early on, and we're gonna see those changes happening now. That's why as well we're excited about the Skedify acquisition because they fit perfectly into adding that value towards the new clients, right?
In some of the pipeline next year, very early next year, we're hoping to get some exciting new clients on video enablement. Already we've seen some improvements since last year on critical meetings, which is why we get so much traction this year.
I think it's
All right.
It's also a fair point that we have, as you say, pivoted our strategy from trying to launch then the Pexip Webapp in terms of being the more broader video client to really using all of that core technology and using it to be really, really sharp into video enablement.
That's probably a testament to the technology as well, right? Being able to within six months do a sharp turn in terms of adding value to video enablement rather than collaboration. Yeah.
With respect to R&D pipeline, I mean, do you have any sort of particular initiatives in the pipeline that you could detail already now?
Yeah, I think.
Functionality-wise.
A lot of what we discussed around the end around NVIDIA, SimplyVideo and so on, those are key strategic initiatives for us. Also, video enablement, we talked about those that you were on the wheel. There was one that was about sales engagement, and the other more about government services and various other services. We think that on sales engagement, it's gonna be much more SaaS. We have actually spent a lot of cycles to build up a next generation SaaS that we very much will power this with Skedify again and add that new user experience. On the rest, we do see that self-hosted and sovereign cloud is something that will be quite important.
We have very much invested sort of differently in the two areas, and that's something that shows into resources from R&D. I think from my side, basically, we are at this point investing a lot into anything that is sovereign, critical meetings, and so on and so forth, but also into SaaS and sales engagement, with quite a bit of AI too.
Very good. I think those were my questions then. Thank you for your answers.
All right. Thank you guys for participating, and thank you for your very good questions. We will now move on to the questions received from the audience through the chat function. We will begin with a question to Øystein, our CEO and interim CFO. Sorry, CFO and interim CEO. Do you sell on-premise solution as a yearly license plus support fee, or is it based on per user? And can you say at what price levels you are able to sell per user or license?
Yeah.
When we sell a self-hosted solution, it's typically a sort of per capacity type of sell. For us, especially if you sell video infrastructure, it's probably more correlated to the number of meeting rooms or video meeting rooms the customer has, more than the number of users. In terms of, it's very much sort of a volume-dependent price model. It's as the question sort of states, it's on an annual basis, so the customer needs to renew every year to sort of continue using the software. It typically has a maintenance component into it.
Which in effect means that you're buying 80% or so for the software itself, and then you have 20%, which is related to the maintenance. I mean, at the end of the day, you're paying X amounts for continuing using the software and have great support from Pexip for the next 12 months.
All right. Thanks. Next one to you, Øystein. Now that Pexip is on course to becoming the number one in the top end of the market, is there anything to prevent the company from gradually also trickle down to the SMB market?
That's a great question. I think it's really, really important for us to stay within the markets where we are finding great success. Because I think what the opportunity in front of us is huge. Our core priority is to really make sure that we execute excellently within that focus rather than too quickly broadening ourselves and then risking becoming less differentiated overall. I think for us, there's nothing stopping us from doing so other than I think we'll get higher return from our investments when we go into the areas where we're truly differentiated.
Thanks. Maybe you can put the CFO hat on and this one is finance related. Could you please tell us about the free cash flow profile on the business in 2024 and CapEx to sales, and also net working capital to sales?
I think overall, the free cash flow will follow EBITDA quite closely. I think that's the overall message. There are, in terms of CapEx, we've been fairly consistent on that over the past few quarters, and I don't expect any large changes in our CapEx profile, compared to where we are today and where we've been for the last year. In terms of net working capital, I'm very happy with the way that we have been able to reduce or basically maintain accounts receivable despite growing ARR throughout 2021. We continue to see, on the liability side, accounts payable and contract liabilities go up, all of that positively impacting your net working capital.
The other big driver for us is contract cost, which we, as we continue to grow and scale our sales team, we continue to expect to grow, which will then basically be an add to the net working capital. I think those are the core drivers for us. Overall, I think it's really about profitability down into free cash flow because it's not a very CapEx-intensive business.
All right. Thanks. Those were all the questions to you for now. I would like to welcome Nico on the stage. We have a question for you.
Yes.
We are hearing the so-called metaverse these days. Is this an area of opportunity for Pexip?
That's a good question. Just for the ones not knowing what the metaverse is, essentially Facebook came, I think a few weeks back, with an announcement that essentially would be creating a fully virtual world, all in 3D, where you could basically live your life. You know, watch TV, meet your friends, even consume services, business services from there. I think this is to me. To answer the question, absolutely, and this is to me another strong signal where the world is going at a fast pace towards digitalization, right? This is where as well the architecture we have built is basically a blessing.
We do everything in the network, which means in essence, we compute, you know, a huge amount of data that can come from camera, like it does today, or could come from a VR equipment, like it would be the case with Facebook, and we can do all that compute in real time. So to answer the question, yes, absolutely, we have a role to play here, but I think it's good to remember as well that technology should be here to improve on reality. That's essentially what we talked about a bit earlier, right? With SimplyVideo and mixed reality, we're able to help a worker to get their task done in a safer way and faster through mixed reality, through technology.
Also we improve on reality with NVIDIA, for instance, on fixing the eye contact or reducing the noise, the noise in the background. To me, what Facebook is doing is exciting. It's basically the next level. We will be part of that journey for sure, because that's really where we think we can add value. To be honest with you, Facebook will need partners to be able to add the value that they want on there. Long story short, I think we're quite excited about seeing that digitalization happening. It's still early on, and we still have all those phases that we will go through with the industry and, yeah, in short, looking forward to it.
Excellent. Thank you.
Thanks.
Next question, I would like to ask, Åsmund, back on the stage, please. Åsmund, great customer examples with Volkswagen and LinkedIn. In this segment where security is at the highest priority, are you the market leader? How big is this market?
That's a good one. LinkedIn and Foxwise is somewhat different. LinkedIn, we're mainly the main use case is the video infrastructure piece of it. There we are definitely leader. I think we define ourselves as that. There's still great opportunities for us there and still a market share for us to grab if that's really the question. Now when it comes to what we like to call critical meetings, we, as I said, of course, we normally win when we're up against competition on these kind of opportunity cases with the customers. There's a lot of players here. We have a smaller market share out of the total market, so I think the opportunity for us there is great.
I think that's gonna be my way of answering it.
All right. Thanks. For the last few questions that have come in now, maybe we can get back Øystein, please. In your press release today, you said you expect improved profitability in 2022. Does this mean that the EBITDA margin will be higher in 2022 than in 2021 as a whole? Or that you expect margins to gradually improve during the year?
Our intent when saying that we improve profitability during 2022 is that on a quarter-to-quarter basis, that we expect ARR growth to outpace growth in cost. It's more sort of that we gradually throughout the year will improve profitability.
All right. Can you please give an indication of your approximate market share in video enablement?
I think, looking at the market now, it's only below five percentage points. It's still a very small market share. We expect, I think, one explosive growth within that segment. It's really a market that is, I would almost argue, underserved by vendors. A lot of the investments and solutions that are there already are solutions that customers have built themselves.
As they scale up, and this becomes a more critical part of their business, having an end-to-end solution that is far more reliable, easy to monitor, and can basically offer more functionality, both to them as a business and not least to their customers and end users, is some of the reasons why we're finding success and also taking on that part of the market and convincing them to go for a ready solution as opposed to building it themselves.
Okay, thanks. When it comes to salespeople in 2022, which geographies and segments will you hire most in?
I think for 2022, we will focus around our core markets. We're finding good and solid traction in, especially in the Americas, now, so we'll continue to invest there. We'll continue to add investments into EMEA, where that makes sense, and to some extent, in APAC for 2022. I think it's really putting people behind the markets and the sectors where we're finding good success during the year.
Okay, thank you. I do not see any more questions. We have covered most of the topics or all of the topics that have been asked. Thank you very much for your attention. That concludes our Q&A session, and have a nice day.