Live. Presentation. I am Odd Sverre Østlie, and I'm the CEO of Pexip. Today, we will start with a business update, which will also include a section on products by Nico Cormier, before we have a section on sales and financial results by Øystein Hem. The presentation is about 30 minutes before we do Q&A. Feel free to submit questions, mail to ir@pexip.com. Please state your name and your company which you're representing. The presentation is, by the way, also shared on our investor web pages. Now, before we start, first of all, I'd like to say that the results we are presenting today are outstanding for Q4 and for 2020 in totality. Results like these are not coming by themselves and nor by any single individual. They come from really hard work from the entire Pexip team.
This is a team that, as everyone else, has had the hardship of COVID-19, is really looking forward to meeting each other again. I feel both privileged and humble in being able to present our results on behalf of the entire Pexip team. With that, let's get into it and start to talk about highlights for Q4 and 2020 per se. The highlights can be arranged on two dimension. First, we are delivering great results, keeping us in line with our growth ambitions. You see that in our annual recurring revenue, growing 73% to $82 million U.S. You see that in our revenue, the full-year revenue being at NOK 679 million. That is +83% versus 2019, coming along also with a 15% adjusted EBITDA. These results are, of course, coming from customers that are willing to put their trust and also money in Pexip.
With that, it's also in Q4, again, worth mentioning our new record deal with the U.S. Defense Health Agency, taking that account up to approximately $2 million in ARR with us. The second dimension of highlights is maybe the most important one for us for the future, is that we are delivering on our acceleration plan, which is readying us for the future. Some highlights there is in Q4, we launched our Pexip Private Cloud. We also announced the launch of Pexip Room with Logitech, or we did that in the first few days of January, but definitely worth mentioning also here. Maybe most important, we were able to attract a lot of great new talents to Pexip. We increased our sales and R&D capacity and are now, or by the end of last year, we were 361 employees, which is up 98%.
On that note, as we speak now, we are just about 400 employees in Pexip, obviously also a lot starting in January and early February. In terms of business update, as usual for newcomers, and as a refresh for others, let me start with an introduction to Pexip. Pexip delivers a meeting platform that provides video communications as it should be. What does that mean? How can we say that? Well, for the end users, we provide a better way to meet with no compromise on audio and video, a great overall meeting experience, and really a safety for the users when they invite to a Pexip meeting, they have unparalleled reach. More or less everyone on the planet, independent of what technology they have, can join a Pexip meeting.
Of course, for the users, as well as for the IT buyers, security and privacy is paramount. For the IT buyers, they particular enjoy that they can customize the platform, they can meet whatever unique needs they have, and they get full control of data privacy, data sovereignty, and compliance with the security standards that they might want to adhere to. This, in combination, the fit both with end users and with IT buyers, typically makes us preferred by larger organizations. Having said that, also advanced video users and smaller companies like that are also, of course, attractive for Pexip. Now, on our customers, they typically choose us and use us for a combination, or one, or a combination of three main use cases. This makes us differentiated in the market.
First and foremost, meetings, with high-quality video meetings, where customers really tell us that they enjoy how we can bring meetings to life, that they can join from anywhere, and that we take care of privacy and security. That's important reasons for choosing Pexip. Second, on what we call a vertical market applications and integrations. We believe we are the leader in delivering a video platform that can integrate into your business workflow, and at the same time is private and secure. That is why we believe we are leading the race to capitalize on a growing demand in this area, for instance, from larger healthcare providers globally. As we have noted here before as well, we are now past $10 million in annual recurring revenue in healthcare alone.
Thirdly, not the least, we also provide access for non-Microsoft or non-Google devices and services that want to join Microsoft Teams or Google Meet meetings. Many customers tell us that our offering in this area are the best in doing this when it comes to ease of use, quality, and experience. As a business, we are no doubt a high-growth business, have been able to show that from when we started. Our revenues are 97% based on subscriptions, and we measure that in annual recurring revenues. Although we're not that old yet, we are still pretty global, we will say, when it comes to users, partners, and employees. In terms of our business, although we are heavily weighted in EMEA, we started in EMEA, we believe also we have a very solid platform for future growth in both Americas and in Asia Pac.
In terms of Pexip's equity story, it really starts with us being in a massive high-growth market for video. It should be no doubt about that. In this market, we have a unique position towards larger organizations, being it enterprise or public sector. In this industry, we have a very recognized video platform with some unique technology. One of the most unique aspects is what we have referred to as our real-time media processing engine, allowing us to do magic when it comes to video in the cloud, in the infrastructure. Thirdly, we have an exceptional R&D team with a history of industry-defining innovation and definitely are looking forward to continue to do that. We're also very privileged from the beginning to have been trusted by very high-demand customers, both in enterprise and government.
This, in combination with a very scalable business with gross margins in the 90s gives us a large confidence in our growth path going forward, where we have said that we definitely aim for $300 million by the end of 2024. In terms of these targets, beyond revenue targets, on long-term growth and profitability, we have said we aim for both revenue growth and EBITDA to be above 25% in 2025. On the journey towards 2025, as communicated, we plan to invest up to 70% of the net proceeds from the IPO in growth initiatives. We expect these investments to be mainly in employees in sales and in R&D. This means we will expect negative EBITDA margins in 2021 and 2022 before the revenue growth pulls EBITDA to be positive during 2023.
At the end here, in terms of market recognition, to reach these targets, they both depend upon and enable us to be an even more recognized position in the meeting solutions market within the next three to four years. In terms of Q4, for us as a business, we have talked about how important our customers are. No different from Q4, where we continued to attract a range of new customers. Of the ones we can talk about, we have selected the Defense Health Agency for sure, which also we had an announcement around. DLR is the German Space Agency, or NASA, if you want, in Germany. We're also very proud to get the United States Coast Guard service to be among the Pexip customers. In addition, we added 10 new Fortune 500 accounts in Q4.
Our focus on large organizations is driving our growth. You see that in our annual recurring revenue breakdown. We're now more than 50% of our ARR comes from customers paying us more than $100,000 a year. Now, we are doing well, and we would also like to reiterate our positive view on business post-COVID. The whole rationale for saying that is that we, but also others like McKinsey here, believes that the new normal, the next normal, will be about hybrid working. What that means is that we will neither continue to work entirely from home as we do now, nor will we go back to the office like nothing has happened. We will work more in a hybrid way. We will combine work from home and the office. As such, stuff has to also happen in the office.
Every room in the office will have a video device. Every meeting will be a video meeting. Thus, you need to connect everything from the browser to the boardroom internally and externally. That plays to Pexip's strengths because we are really, really strong on PC to PC-based communication, but we are unique and unparalleled, I would say, when it comes to being able to also then in combination serve a range of different meeting room devices. Across different networks, across different organizations. That fit, plus the event itself, it will be several events, we believe, on an ongoing basis with video now being much more important for enterprises and organizations. IT, as they get out of, call it the COVID paralysis, will also, on a continuous basis, evaluate what solutions they have. Is it good enough? Does it provide enough quality?
Do we have the right privacy, the right security to the needs we now have, given how much we use it? We also believe that will play well into Pexip's strength. Maybe even more forward-looking, we can talk about further to hybrid working being the next normal. There is no doubt sustainability will further drive the need for video communications. For many, it's obvious that we can't or won't return to traveling as much as we have done, and Pexip and our industry has a big role in making that possible. Furthermore, there are also areas where we can significantly transform efficiency and quality when we have just started on areas like healthcare and educational services, and digital inclusion will in itself be a key area in the years to come.
I stated earlier, as part of our annual report, we will publish our first sustainability report. A quick update relative to Pexip Private Cloud that we launched in Q4. We're happy to see strong interest amongst end users and/or end customers, I would say. Promising pipeline generation. We are being told that our value proposition resonates, focusing on speed of deployment, security, and flexibility. We are very optimistic for the future when it comes to the Pexip Private Cloud. In mid-January, we launched Pexip Room in partnership with Logitech, and we would like to give you a bit more color to this opportunity. There are two general types of video endpoints for meeting rooms. First, standards-based has by far the largest install base. That's what we all did in the old days. We're continuing also to do that.
It is made from a large range of manufacturers, including Cisco, Poly, a lot of others. Pexip has, since we started, offered subscription services for these video systems, virtual SIM cards, if you want. Now, the second group here, the reference design, is growing more and is expected to go past standards-based. These are hardware devices, which you, when you set it up the first time, decide what type of software should run on it. For instance, the same hardware device can be made into a Microsoft, Zoom, or a Google Meet device. And it is in the context of this, we are going to provide the Pexip Room app for Logitech's new products, and Logitech has more than 50% of this market today.
In terms of go-to-market hardware and software, it's combined by the channel partners. We expect the price point for the software here to be NOK 49 a month per room, in line with existing market. Nico will talk a bit more about the Pexip Room shortly. For now, I will wrap up this section saying that we have not only started, but we are well underway on our next phase in our video communication adventure. You'll see the little rocket here is moving a bit, it seems, from our quarterly presentation to the next. What we are doing, we're really having with us our history prior to the IPO, where we showed several times that we can take on investments, grow, and get back to profitability. We're now well underway in accelerating our business with the proceeds from the IPO.
This boils primarily down to investments into people for two purposes, supercharging sales and marketing and expanding and innovating on our product offering. As we do this, execute well, we will have no doubt be able to reach our ARR targets as well as a broader leadership position. With that, I will take down the presentation for a second because I would like to welcome Nico Cormier, our COO on stage. Welcome, Nico.
Thanks, guys. Good morning and good afternoon, everybody. I'm Nico Cormier, COO at Pexip. I look after technology and product. I think I would like to start very quickly with talking about mostly technology, but mostly about our tech partners. We have quite a lot of tech partners from outside our industry, but also from inside our industry. I would like to focus on two that you guys know very well right now. Let me get this going. It's Microsoft and Google. You know very well that those two are special to us. Why? Well, essentially, they are what we call research and development deep technological partners. We work with them on a daily basis to co-build products.
If you look at a typical day of an engineer at Pexip, where they will spend some time to actually work with Microsoft engineering and Google engineering to produce products. I'm very glad to announce that as part of this initiative of having those very deep R&D partners, we're adding one on the list in the name of Logitech, and that's what I really want to talk about today right now with you guys. Before I go into Logitech, I'd like to tease a little bit with, as you can see, there's two more names on that list. We're working with two other deep R&D partners, and we hope to be able to unveil those names at some point this year. Stay tuned because I think it's going to be exciting here as well.
Let's talk about Logitech quickly. More than a year ago, Logitech came to us and they were saying, "We are working on something quite special, quite unusual for us, and we think you guys might be interested into it." We quickly signed the NDA and went to them to listen to what they had to say. Indeed, what they had in mind was actually quite interesting. You guys all know Logitech. This is the top leader of webcams and microphones. It's not unusual to go to a meeting room and you will see that someone has set up a Logitech camera and a Logitech microphone and plug everything into on a mini PC or a tiny PC to be able to do video calls. That's quite usual, but it has some downside, and it's not necessarily the best experience for the user and the IT guy.
What they had in mind was to basically step up, go a bit more premium, but also integrate everything into a tight package. That's what they've done. They basically put a great camera, a great microphone, a great set of speakers into a soundbar, and that is basically put together in very tight and premium package. They also decided to do this on multiple sizes so that they could address as much the huddle room, then the medium size room, sorry, and the large boardrooms. In terms of the hardware, we were super excited because of the quality we've seen and also how premium and nice it looked. Also we got really excited when they told us about they didn't want to write any software for it. Essentially, Logitech is a great hardware manufacturer.
They build really good hardware, and they ship it very well, but they didn't want to do any software. That's where we came in. They build a small Android platform on top of their hardware, which allows us to basically take control over everything and do what we do best, which is software, video software. Essentially, for the last year, pretty much, we've been working with them on one side, Pexip is building the software, on the other side, Logitech is building the hardware, and it's been actually a great relationship with them. The outcome of all this, and you guys seen that when we announced it in January, was the Pexip Room.
The Pexip Room, again, the software from Pexip, the hardware from Logitech, and I will not go into the details, or do a demo because I think you guys seen some of it already, and we will continue showing some on the internet. Essentially, it is true to the DNA of Pexip. It is secure by design. What does that mean? Our customers are large customers. They are all about privacy and high requirements. It could be federal, it could be others. Having a secure by design, but also total privacy is super important. The second one, being able to leverage completely the hardware to build, to use our AI stack and give better immersive experience. We talked about that back in December during our tech day, but being able to deal with video fatigue and video anxiety is something we really believe in.
Great immersive experience is what we're bringing with the Pexip Room. Finally, Interop. We believe at Pexip that anything we do needs to be able to connect to anything out there. Pexip Room will be with Interop at its core, as always, with the Pexip product. Super proud of the Pexip Room. We are very excited to launch it, and talking about dates, it will basically be launched in Q2. Some good news here again is that we will be able to launch it on our current offering, but also on the next offering that we teased you guys about back in December. I'll come back to this very quickly. OS, you talked about this, but I'd just like to make a quick point about this. Who are we addressing with this? Well, we've been always about the standard-based endpoints and meeting rooms.
That's something that was always our bread and butter, and we've been really good at addressing. With this, we can finally, like OS was saying, address the reference design market. This market is very much growing. For the first time, Pexip is able to address the entire meeting room sales segments. It's not just new sales, and that's something that I'm quite excited about. If you look out there are plenty of those meeting rooms with tiny PCs like I was describing earlier that are begging to be upgraded. The great thing about what we're doing with Logitech is that they have a solution that does not require customers to buy new hardware or a complete new set of hardware.
They came up with basically a replacement of that tiny PC, which allows customers to remove the mini PC and then plug the Logitech PC instead, and suddenly they can get the full Pexip experience. Not only we will be able to address the entire space now, but also we'll be able to address existing meeting rooms, which is a great upgrade path. That was my very quick update about the Pexip Room. We're super excited. We talked a lot about this last year. We are doing a lot of things around collaboration. We're coming up with our next generation collaboration apps. I think this is going to be really exciting for our users and for you guys, too. Very much on track on this, and we will give you more updates going forward. I'm going to wrap up with yet another partnering announcement.
We have another tech partner out there in the name of Epic, not as famous as Logitech, but definitely as instrumental for us. Epic is the reference in patient journal software. Basically, when a doctor is entering information about a patient, there is a big chance that this software is going to be Epic. We've been working hard with Epic to bring an integrations onto their software, which means from January, we released an Epic integrations that's going to be allowing doctors to basically schedule a video call with their patients through Pexip. Very nice user interface, very nice workflow, and I think it's super exciting. What's maybe the most exciting thing for us is that out there are 250 million patients that are currently on an Epic system. Huge user base for us.
I'm going to wrap up before giving it back to you, OS, with something we did describe last year. We are believing a lot in telecare and healthcare. We've been, as part of the product strategy, dedicating a full team of developers and designers onto the healthcare segment. We have launched earlier this week the Pexip Health Initiative, which is basically integrating all of our initiatives in healthcare, to give you guys and to give our users updates about what we're doing in that vertical. Super exciting. Altogether, that was my update. Thanks, and back to you, OS
Thanks for that, Nico. Exciting stuff happening on products, and if you missed our tech summit just before Christmas, it's possible to email ir@pexip.com and ask for access to it. With that, it's time for numbers. Welcome to Øystein, our CFO.
Thank you, Sverre. My name is Øystein Hem, CFO of Pexip. Let me start off with our subscription base. We measure that in annual recurring revenue. Out of Q4 2020, we reached $82 million. That is up 73% compared to Q4 2019. Similarly, if we look at Q4 standalone, we added $9.1 million in additional ARR, which is a factor of 2.1 the corresponding figure of 2019, which we're obviously very happy about. If we look at where growth is coming from, we see that all geographies and all product lines are contributing significantly to our overall growth. Starting off with geographies, both EMEA and Americas, which are the two largest revenue areas in Pexip, and also where we have historically invested the most and will continue to focus on, are growing close to 80%.
We're also very pleased to see that Asia-Pacific is now at 42% growth, which is higher than earlier. In terms of product line, Pexip has two main offerings, our cloud service for customers that prefer Pexip to handle the operation and just want to consume a video service, and our software for customers that want more control, more customizations, and more privacy. Our software area, which is the largest, is growing at 55% per year and is now at $49 million in annual recurring revenue. Similarly, our cloud service, growing even stronger at 109%, is now at $33 million in ARR. Both of these are based on a recurring revenue model. Another perspective on where growth is coming from is looking at what is from new customers and what is from existing.
Starting with new customers, we have added $28 million in ARR from customers that are new to Pexip over the last 12 months. That is 59% of our overall growth. Existing customers are also growing, and with net retention of 114%, means that on average, a customer of Pexip is paying 14% more than they did a year ago. That is a combination of net upsell of $11.4 million, as well as churn of -$4.9 million. If we have a look at how this has developed over time, we see that new sales, which is the dark blue area, is growing consistently quarter-over-quarter. You will recognize the chart that I just showed on the far right of this one. Similarly, we see that net upsell saw a significant increase during Q1 of 2020 as enterprises scrambled to increase their video capacity facing COVID-19.
After that, we see that net upsell is increasing but in the same rate to balance out churn, which is also what we saw prior to COVID-19. If we leave our ARR base and look at our P&L and our revenues. For Q4 of 2020, we did NOK 229 million in revenue. That is a 96% growth compared to Q4 of 2019. That takes the full year revenue to NOK 679 million, up 83%. Following our development in ARR, cloud service revenue is growing the most, up 155% year-on-year to now NOK 70 million. This is due to both strong sales, but it has also benefited from a higher USD to NOK exchange rate throughout 2020.
Software revenues have typically a strong quarter in Q4. That is the case also for Q4 of this year, as revenue is recognized upon time of delivery of the license and a lot of annual renewals as well as new sales are happening in Q4. Software revenues reach NOK 159 million, which is up 78% compared to Q4 of last year. In terms of gross margins, due to an increase in cloud service revenue, it has gone from 95% in 2019 to 94% now in 2020. Cloud services has somewhat higher cost of goods sold due to the fact that Pexip is handling both the cost of network as well as compute compared to our software offering.
Before we move on to operating expenses, I want to speak briefly about the main driver of cost, but also the main driver of future growth for Pexip, namely scaling the team and making sure that we take advantage of all the skills and all of the talent that we are bringing on board. We're continuing to add a lot of capacity, both in sales and marketing, as well as in engineering to make sure that we build a strong and consistent growth engine. It's not just about onboarding people, it's also about making sure that we take advantage of the diverse talents that we bring on board. Pexip is investing a lot in both training, recruiting, and culture development, which during 2020 has all happened digitally.
The last event was our virtual team kickoff in January, which proved that even though we need to do things slightly differently to meet the requirements of social distancing, we can still create great events that create a common direction, a lot of passion, and sort of builds the Pexip team spirit. We will continue to do so, as making sure that we have a strong team spirit is key to us, especially with a lot of new hires. The planned increase in headcount is also then driving an increase in salary and personnel expenses, as you would expect. In Q4 of 2020, we have NOK 131 million in salary and personnel expenses.
This increase is roughly NOK 10 million lower than due to a reduction in provisions of Social Security costs related to our share option scheme, which is due to the share price at the end of the year. The current outlook is that this provision will be reinstated in Q1 of 2021. Other operating expenses is increasing due to a increase in marketing spend, as we want to capitalize on this strong market for video communication, and also an increased activity level overall. Travel expenses remain low due to COVID-19, and overall, other operating expenses is increasing less than both salary and personnel expenses, and revenue. The resulting EBITDA for Q4 is NOK 49.5 million or 22% of revenue. This is a significant increase from Q3 of 2020, and is mainly driven by the strong sales of software, which is seasonally strong in Q4.
It also takes the year-end EBITDA if we adjust for IPO costs earlier in the year to NOK 103 million or 15% of revenue. The increase is driven by significantly higher revenues, while the reduction in margins from 21% in 2019 to 15% in 2020 is reflecting that we are investing heavily in growth for the years to come. In terms of investments, Q4 also saw higher cash flow from investing activities, as the majority of the increase is due to payments related to the customer base acquisition that we announced earlier in Q3 of 2020. We also see an increase in spend for servers and office fittings in Q4. If we then look at the resulting cash flow bridge, we see that EBITDA, as well as a neutral development in net working capital, is contributing well to cash flow and somewhat balanced by a higher investment spend.
However, overall, we're very pleased to have a positive operational cash flow in the midst of our acceleration plan. The key thing to call out for Q4 is the impact that exchange rate changes has had on our cash holdings. Pexip holds a variety of currencies to minimize the real currency risk of cash holdings to match cash outflows. As such, we hold 60% of our currencies in non-Norwegian kroner. Since the Norwegian kroner has strengthened itself significantly during the quarter, this has an impact on our cash holdings measured in Norwegian kroner. Still, exiting 2020 with NOK 1.1 billion in the cash position, together with minimal interest-bearing debt, gives us a very robust cash position to continue to invest in our acceleration plan in the years to come. With that, OS, I give the word back to you.
Thanks a lot, Øystein. I think we'll both actually be here in a second, but I'll actually start, or the beginning of the end is the summary, so I'll do that first. To wrap this up, a couple of elements here on both Q4 and the 2020. We are, as we said, very happy with our strong top-line growth as well as solid profitability. Getting to NOK 679 million in revenue and +83% is strong. We're also happy with this growth being persistent across all our geographies. In the end, ARR growth is what we follow the closest. Also super happy with that developing nicely in Q4 with $9.1 million. On our acceleration plan, which really is about the future, happy with launching Pexip Private Cloud.
We talked also about this announced launch of the Pexip Room that we agreeably did in January, but is an important event for us. Most important for us, again, is being able to attract all of this talent where we reach 361 employees by the end of Q4. As Øystein said, also very satisfied by having a very solid cash position to use and invest in future growth. When it comes to outlook, we are remaining positive when it comes to video in general and definitely Pexip in particular. Many reasons for that, but the highlight is around this shift to a hybrid workspace that we believe that a majority of enterprises, as well as government organizations, will be going through, which plays really well to our strength.
Furthermore, we believe that we're just in the starting phases of understanding how organizations can embed the video into their workflows towards their customers, partners, clients, what have you. We see some of those early proof points in our successes in healthcare. That's a very positive outlook that we see. Important for us as well is that we need to, and we will continue to execute on our growth plan. When it comes to future growth, it's about people, sales, and marketing, as well as R&D. As such, we're targeting 550 to 600 employees by the end of 2021. This is really also where the proceeds of the IPO is going, where we reiterate that we will deploy up to 70% of that raised capital during the next three years.
Last but not least, we are still very positive in terms of our capacity and our ability to reach our long-term target of $300 million in ARR by the end of 2024. With that, I'll take down the presentation, and we will prepare to do some questions. As we zoom out here, and I think we have, yeah, more or less probably socially distanced ourselves. We are also having some of our analysts coming on board. Isn't some specific procedures welcoming, what have you?
Yeah. Thank you, Øystein and Nico. My name is Mirza Koristovic, and I'm the director of investor relations. We will now go into the Q&A session, and we are pleased to welcome three of the analysts covering Pexip for this session. We have Dennis Berggren from Pareto Securities, Øystein Lodgaard from ABG Sundal Collier, and Oliver Pisani from Carnegie. We will begin with the questions from the analysts before we take on the ones we have received on email. Let's start with Dennis. Do you have any questions for us?
Thank you, and congrats on a strong quarter. I was thinking of starting with Pexip Private Cloud, that was introduced about two months ago. My first question is how it has been received so far, and also if you could put some more color on your own expectations regarding the financial impact, and preferably in terms of ARR and gross margins from Pexip Private Cloud in 2021 and 2022.
Sure. I think the reception we covered, I think a little bit. Far it's a lot of interest, a lot of people that want to engage with us and partners that want to try it out, want to start discussions with the customers who are in those early phases of building pipeline. What we do expect is that it will have a meaningful contribution to our ARR already in 2021. In terms of margins, since the Pexip Private Cloud has Pexip managing the compute, we do expect a higher COGS than our existing software offering per se.
Right. Also with regards to the healthcare vertical, where you seem to experience some quite hefty demand, can you please say something about the opportunities that you're currently seeing, and also how applications within this vertical differs from a business perspective? Perhaps in terms of lead and integration times and general pricing levels.
Excellent question. It does differ quite a bit from what we call horizontal meetings in several ways. There is much more extensive customization that the customers prefer to do, both with Pexip and how it fits into their overall call it workflow. There might be other system integrators in some cases. It's Accenture doing a lot of work. It might be others. They do development themselves, so longer both lead time to the deal, but also implementation time. Having said that, the deal sizes per se is also much more meaningful for Pexip. It's sizable deals that we are into, and it's also an area where I would say we have a very strong competitive stance since it suits our product attributes so well.
Just a final quick follow-up on that. You announced the level of ARR that you currently have from the healthcare vertical. Would it be possible to just provide some color on ARR from the finance vertical, which is another that I know that you've been spending some time on?
Happy to. Healthcare is definitely the largest vertical that we have. Together with other in public sector, if you group those together, it's also a meaningful area. Finance is definitely a clear runner-up together with, I would say, general technology and also more generic enterprise customers.
Okay. Thank you very much. That's all from me.
Thank you, Dennis. How about we proceed with Carnegie, with Oliver?
Yes, sure. Again, congrats with a strong quarter. Thank you for taking my question. If we look ahead, would it be able for you to give any color on Q1 trading or say at least your sales lead pipeline going into 2021 and your current business momentum?
I think we will not give a concrete update on how we are trading for Q1 until the ARR release, which is due early April. In terms of pipeline development, it's developing nicely, and I think also for Pexip onboarding a lot of new sales reps. That is also to be expected as the first KPI that a new sales rep needs to meet is that they are building pipeline. We have high hopes that as we move through 2021, that we will also start to see that impact in a meaningful way in terms of our ARR growth.
Right. Very strong numbers even compared to analyst expectations and consensus. Are there any particular elements relating to, for example, multi-year contracts or a significant share of multi-year contracts that were recognized in this quarter that we should be aware of as we go into future quarters?
I think there are two elements that affected Q4 positively in terms of recognized revenue. One is the large multi-year contract that we also announced in our ARR notice, so a five-year contract. Obviously, when that is delivered in Q4, it has a meaningful impact on revenue. Also in terms of a lot of the upsell that we did both in Q1 and in Q2, a fair amount of that is related to contracts that are being renewed now in Q4, and hence has an increase in revenue in Q4 of 2020 compared to what it was when the contract first started out in Q4 of 2019.
Right. You mean there is sort of an annual price adjustment to those renewed contracts or so?
Yes, as a customer is adding volume mid-year, once that quotation of that additional purchase is renewed, it also increases Q4 revenues.
All right. That makes sense. Now, perhaps the last one, I think on your tech summit, you spoke about launching sub-second latency streaming in 2021. Could you give some more color on that? Would that be a market leading standard and what are competitors doing in that space?
That is a good question. I think we feel that we have something unique in this space. I don't want to do a full comparison of the entire market, but as a reference point, when some of the current leading players in both the web streaming, web events are talking about very low latency, they're talking about between five and 15 seconds. We are talking about streaming with the same latency as we have in a normal video conference, which is basically, it's like talking to each other maybe 100 meters away or so, but still manageable. We believe we will have something unique in that area, and we think in particular it will be relevant for, call it larger meetings where you want to have some participants that are following the stream, being able to escalate quickly up as participants to take part in the discussions.
That is really only meaningful if you have the latency down to the sub-seconds that we are talking about here. You can have that interactivity. We think it's a unique product that we are coming out with. I won't speak to others and what they are doing, but I do think we have some unique skills that will show.
Yeah. Very helpful. Thank you.
Good. Thank you, Oliver. We will move on to Øystein from ABG Sundal Collier.
Thank you. I would like to ask a question about this Epic partnership that looks really exciting to us. Can you tell us about how the sales model will work here? If I'm a hospital using Epic software, how will I become aware of the Pexip add-in?
Good question. The way it actually works is that, for us, Epic is on our software platform as an additional integration feature, we can turn it on and off basically with a license key. It will be the same way as any other Pexip deployment. There is a system integrator or a partner of ours, a channel partner that delivers both the software and the necessary integration services. In that sense, there is no transaction that happens that is like I buy this from Epic or what have you. It is an integration into Epic that we have worked with Epic on. For the hospital, they will work with their system integrator of choice, which then will put Pexip into their solution.
Maybe you can clarify further, Øystein.
No, I think the main value add for us is that it makes the customizations that you talked about earlier much easier to do. Epic already comes with a lot of workflow support in terms of how to book an appointment and how to manage the customer relationship. With this Pexip integration, it's a lot easier to then use those predefined workflows and just add Pexip into that and have a telemedicine offering out in much shorter time than the healthcare provider would otherwise be able to.
Which is an excellent point, right? Because some of our current or historic healthcare providers, super large, right? They've done a lot of this integration maybe themselves, made their own little version of it. What this will do, it will make the Pexip Health offering accessible for much more, call it medium-sized healthcare organizations or even faster to larger organizations still. That, in combination with the Pexip Private Cloud, we also believe will be a good way for these organizations to be able to, I want it, but I don't want to have too much hassle actually doing the work and the integration. It's much more, call it ready-made for them.
Thank you. You had a very exciting tech summit now before Christmas, and you made a lot of new product launches. For instance, the Private Cloud and the Pexip Room solution that we talked about. Can you give some thoughts on how much you think that this will increase the addressable market for you?
That's a question that I don't think I can answer specifically. What I can give you as an indication, because it's to some extent up to you guys maybe also to have your qualified view, I would say that the meetings market in itself is huge, growing, and I think with what we are doing, we'll be able to take an even bigger share or be more relevant to a lot more in that market. I think on top of that, with what we're doing with the Pexip Room is also allowing us to do more in widening what we can do for customers that really enjoy Pexip meetings. They can then expand that experience even further into the meeting room, further than they're doing today. That I think is key.
I think the whole thing on verticals is not properly, call it, sized yet by any market researcher or what have you, in terms of what video can do in these workflows. What we do know anecdotally from some research being done by some consultancies in the U.S., they've been twittering that Pexip seems to do more than half of the doctor-patient video visits that are happening in the U.S. today. We have been announcing that some of the large healthcare providers we have in the U.S., not all. Similarly, you will find that with a lot of these vertical applications.
That I think will expand our addressable market a lot, and that in combination with this private cloud, I think will expand who Pexip can serve in terms of customers that are attracted to us, in terms of they would like to have some of this privacy, security customization, but they don't want to run it themselves, will be the Pexip Private Cloud get closer to I can get a bit of both, consume it as a cloud service, but also get some of this flexibility. That was maybe a more generic answer instead of giving you the exact numbers, but maybe some flavor in terms of how you can think about it.
That's very helpful. Thank you.
All right. Thank you, Øystein, and to the other analysts as well for participating and also for your very good questions. We will now take on the questions from the audience sent through email to ir@pexip.com. The first question that came in was, "What is your view on net retention rate in 2021 and 2022 based on the strong demand spike during COVID-19?
All the difficult questions are for you, Øystein.
Happy to take that one. I think we saw net retention increase significantly during 2020 as a lot of existing customers had to upscale their deployment. What we're seeing now is that the increase in net upsell is balancing churn. Churn is increasing mainly as our subscription base is growing. We expect that to continue as well going forward, which would indicate in the range of 100% plus minus is sort of the trajectory we are on now. That being said, I think the innovations that we have in Pexip Private Cloud as well as the Pexip Room has potential to, call it, structurally improve that. We will need to see that happen before at least I would start banking on that.
It's a very important area for us. We are doing what we can do to make that as good as possible, and includes also doing a lot more work now on customer success and ensuring that our customers get more out of what they have bought, and also, as such, would like to buy more of what we have.
Good. Next one. Could you please talk about when you expect to see your sales hires during 2020 being in full speed?
Yeah. I think we expect sort of from they are hired to they are delivering on the level of sales on a quarterly basis that we're expecting from them, it takes between nine and 12 months. Given that the majority of hires were made in Q3 and Q4 of 2020, we expect the main impact of that to happen in Q3 and Q4 of 2021. That being said, we are not stopping to hire sales reps, and so we will continue to build this growth capacity throughout 2021, but then mainly to not just have a good 2021 but also a good continuation of increasing our growth.
Good. Thank you. This topic was raised from the analyst as well, but a question came in that was on how will Pexip generate revenue from the partnership with Epic?
Yeah. Another angle on that, as Øystein said, it's not that we are transacting through or with Epic per se in the field. We have worked on that on tech, but it's us selling our solution through a system integrator to the healthcare provider, and as such, there is an additional charge for the Epic functionality.
All right. Thank you. One final question. How do you see the video conference market for Pexip post-COVID-19?
Post-COVID-19. Well, first and foremost, we'll be able to travel again. Looking forward to that, also as a company and as a team. I think for us as a business, we talked about this next new normal. We do think that plays into our strengths with us returning to the office is a good thing for Pexip, us also doing that in a way where we will use video a lot, and we will need that video to be able to go from the browser to the boardroom and through every type of meeting room in between. That we believe is good. It will also generate opportunities with, call it IT, coming back to work and also wanting to evaluate what are we actually doing here when it comes to video? What control do we have? What security do we use?
What privacy do we have, and what do we need to do? We're also, by the way, we believe that as we have seen before, more than most larger organizations have three or more different video solutions, and we definitely want to be among them if they are using several. We, of course, want to be the only one if possible. I think this whole area of verticals is I think COVID-19 in itself has now unleashed a lot of new thinking on how we can, of course, digitalize every type of process that we have. I think for video and now with people saying that, "Oh, maybe I don't need to visit the doctor every time if I just want to have that type of conversation." It's not like he doesn't need to stitch on my arm again. It's more a normal conversation that can happen.
That is maybe much more efficient to do on video, and we will continue to do that also post-COVID-19. I think we'll see that on a lot of different services where video can be embedded and not only to save time, but to really make processes more efficient. So I expect the future for Pexip to be great post-COVID-19. Then last but not least, as I started with, because we also can be together, and that will also help us on not only sales but on innovation. Our engineers, they are also social creatures, and they work even better when we can be in the same offices again.
Good. Thank you, Sverre. That concludes our Q&A session. Thank you to all the presenters and participants for your attention. We look forward to seeing you again soon, and have a nice day and a nice evening.
Thank you.