Good morning, everyone, and a warm welcome to our quarterly presentation. I'm Ondsayer Hsley. I'm the CEO of Pexip. Today, we have a business update for you that will also include a presentation on the progress in Americas. We'll have Karl Hento, our President there, join us for that.
We'll also have a section on sales, financial results and all the numbers that you are after and that will be done by our CFO, Oestan Hem. And in the end, we will do a Q and A. And then as we go, also feel free to submit questions in the thing on your side on the web page. So before we start, it's worth doing a have a small look at some of the key highlights of Q3. What a quarter for PEXIT.
We have had 70% growth in our annual recurring revenue. We have had an amazing list of customers join us. We'll talk a bit about those also later on, but it includes some of the logos you see here plus 7 new Fortune 500 customers. And based on this momentum, but more important, what we see going forward for Pexip in a post COVID world and with the strong team that we are assembling now, we are also here to update our long term targets, pull that in with 1 year and reach our $300,000,000 in ARR by 2024. Furthermore, in Q3, we are super happy for the 2nd year in a row to be named a Visionary in the Gartner Magic Quadrant.
We'll give you a brief update on our private cloud, which is now starting to be ready to launch. And at the end of Q3, in line with our acceleration plan, we had 307 employees, which is a 80% year on year development. So with that, let's start for new investors and maybe also for some of the old investors. Let's do a quick overview again of Pexip. So with Pexip, you get video communications as it should be.
For the end users, it means a better way to meet with high quality audio and video. And inviting to a Pexip meeting, you should feel confident that anyone can join independent of what type of technology they are using. More than that, they should be able to do that securely and privately. For the IT administrator, they get powerful administration tools, integrations and in more than that they also get the possibility of full control of their data privacy and data sovereignty as well as compliance with the data security standards that they want to adhere to. So with that in combination, we are high growth company.
We are already global in nature when it comes to users, partners, employees and 97% of our revenue, basically more or less everything of our revenue is subscription based, meaning that we count that in annual recurring revenue. You see that on the left hand side here where we from our beginnings have shown a yearly average growth of 70% and also super happy that we now recently with Q3 also have a 70% last 12 months growth on our ARR. So for Pexip today, it's really about a few things. We are in no doubt a massive high growth market for video. In that market, we are in a unique position towards the larger organizations.
We are also in the industry, we are well recognized with our video communication platform. We have some great technology differentiators. Those include our strong capabilities on real time media processing in the cloud. The R and D team we have is exceptional. We have a history of delivering industry defining innovations.
And with the pipeline we have of innovations to come, we also feel very confident about the future for our R and D team. And despite our relatively young age, we are trusted by a few high demanding enterprise customers and government organizations across the world. And that in combination with a very scalable business model that has a high sustainability impact for our customers makes us very confident on our growth path to reach our targets, including the $300,000,000 ARR target. So on targets, it's worth then talking about our update on the target. And I'm really excited to share that it's time to update and increase our targets.
On revenue, we are way ahead of our original plan. We're also feeling that with momentum with the team we're building, with the products we're building and what we are seeing in the market, it's fair to pull our $300,000,000 target a year ahead, so to 2024 from the earlier communicated 2025. Moreover, on long term profitability, we are maintaining our ambition to have 25% plus EBITDA in 2025. However, we aim to give some more clarity on the midterm growth and 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 remain in employees in sales and R and D and this means that we expect negative EBITDA margins in 2021 and 2022 before the revenue growth pulls the EBITDA to be positive during 2023. We plan to be a high growth company also when we reach 2025. And while it's a long time to then, we also introduced a more explicit guidance of plus 25 percent revenue growth as well as plus 25 percent EBITDA. Since we are confident, we will deliver both significant growth and significant profitability as we have shown consistently also in the past prior to the IPO. So reaching these targets will depend upon but also enable us to be a recognized leader in the meeting solution markets.
Now on the market, it's timely to have a perspective on that from us also relative to COVID. And we have a view on this market that enterprise IT will reassess their video strategy post COVID. And why are we saying that? Well, what we have seen so far this year is that everybody has started using video in 2020. Well, a lot of people were doting before, now everyone is doing it.
That said, most of the use cases are for PC to PC based communications. And as organizations plan to return to the office, we believe that many will need to reevaluate their existing solution. Existing solution. Their existing solution might have been expansion of what they had or what they could get as fast as possible during the early days of COVID. Some of the key questions we believe that customers will be asking are do we have the features we need?
Given we use video so much, are we having the right meeting quality and experience? Is our data and our conversations protected? Is our current solution in line with our security policies? And in this world, with these questions, we believe that Pexip will be more relevant than ever both as a standalone and as an add on solution to others. I'll talk a bit more about some of the elements in what we believe will be our differentiation in this new world post COVID-nineteen.
Important area is, of course, how we work. We believe in a new normal as hybrid working, meaning we will neither go entirely back to the office and work like we did before with no video nor will we stay at home. We will be a combination of office and remote work. And as such, in the office, every room will need to have a video device. Every meeting will be a video meeting to make sure that we are bringing in everyone that is at home from the web browser up to the people that are in the boardroom.
And we need to be able to do this internally and externally between organizations. So this world combining everything from PCs basically to all different types of meeting rooms across organizations is a reality which we believe Pexip is ideally positioned for. 2nd, in terms of video experience, there is a lot of talk of video fatigue these days. And we can also understand that in particular if you have been using solutions with these 3 by 3 or 4 by 4 layouts where half of the screens are black. You might have some people not properly framed or zoomed in or even very, very far back as small people in large meeting rooms.
And while creating the remote video experience is difficult, we believe that we are at the forefront of this, in particular with our new technology around the AI driven adaptive meeting experience where we really bring meetings to life and we help people focus on your conversations. And while there still might be some meeting fatigue, our ambition is that with Pexip, you should have the best meeting experience possible. And we believe this also will be a more natural thing for people to talk about post COVID-nineteen because now when everyone is using video as much, it's also easier to grasp what is good and even better video experiences. Moreover, on interoperability. And on interoperability, Pexip is a leader.
We will continue to be a leader in this space. The most important piece of interoperability for Pexip, we have said and will continue to be is our meetings that inviting to Pexip meeting, everyone should be able to join independent of meeting room device, browser or what type of equipment they have. But also through our partnerships with Microsoft and Google, we provide these solutions that can help non Microsoft, non Google devices to join meetings. There is a lot of different type of options in this space than we have said before. And profitability in this area is a bit blurry.
It's not either you can do it or not. What we claim is that we are the best at doing this and the best at doing this for enterprises. In our upcoming Tech Summit for Investors, if you're interested, you can get a lot more details around this because you have to actually do a bit of product demos and understanding to understand the differences. But for here, the main thing for us is that we deliver the best quality, the best solution for the needs that enterprises have. That is including making sure that the full capabilities of the video systems are maintained.
And we're also the only solution that can be deployed both as a cloud service and as a self hosted software, meaning you have full flexibility on the integrations you want to do as well as reserve your own data for yourself. So with that on the probability, with that on meetings, with that on the new normal, we believe that the main three use cases that we help our customers with, where the customers might work on 1 or several of these is still going to be extremely relevant, even more relevant in fact in the new normal. The first one being and the most important being the high quality meetings that we provide with uncompromised focus on privacy and security. 2nd for the vertical markets which for us is where you can include video into the workflows of organizations, healthcare, finance, other verticals where we already do work. We believe there is going to be a lot more opportunity in these areas for us and we are more or less unparalleled in what we can do in this space.
And thirdly and not least, we will continue to expand access to Microsoft Teams and Google Meet for non Microsoft and non Google devices. So with that, we are saying we're good. We are having a lot of traction. It's also good to have some analysts' perspectives every now and then. And thus, we are super happy to in the recent Gartner Magic Quadrant for a second time to be made a visionary in the area of meeting solutions.
This is important for a lot of IT buyers around awareness and decision support. And what Gartner highlights this year is our strength in expansive APIs. So basically our fit into enterprise solutions, our leadership on the interoperability as well as our deep vertical industry expertise being it in public sector, healthcare and other key verticals. So another note on this is that while there might be 100, if not 1,000 companies doing something with video conferencing out there. In this comparison, it's really 15 companies that are being put into consideration.
And that's less than last year and there's been some companies are not on this list this year. And in that context, we are super proud to be amongst the top 2 visionaries that are really the up and coming companies in this space. And that's really our plan. Let's go upwards and reach more than $100,000,000 which is the threshold for coming into the leader quadrant and going more to the right and increasing our solution offering and the breadth of our portfolio, which we also, of course, are working hard on. So more to come here.
But beyond what the analysts are saying, in the end, it's all about what the customers are doing and what they are paying for. So as such, super privileged, super happy to say that in Q3, we continued to win the trust of new large enterprises and public sector organizations. And there's a long range of customers. We have some we can talk about here and have logos on, NASA, the Space Agency, the United States Northern Command, which includes Homeland Defense. We have the Northwest Territories, a Canadian public sector organization.
We have the Deutsche Bahn, a German railroad company. We have Deutsche Borse Group, a important player in the European Financial Market. In addition, we had 7 new Fortune 5 100 customers. And all of this focus on large organizations also shown here to the right with our percentage of ARR being driven by customers with more than $100,000 So the black bars here. We also see a development there where now more than 51% of our ARR comes from customers paying us more than $100,000 a year.
So great success in this area and also more to come. We'll talk a little bit more about these customers in a second by the way. But also a quick thing, but the important thing on sustainability. And except our solutions address a lot of the sustainability goals, but most known is, of course, our ability to reduce carbon emissions and carbon footprint, travel naturally, but also now during COVID keeping actually societies, organization, businesses operational and then definitely also in healthcare. We believe a lot of this, by the way, will be important also as we move post COVID and the world needs to be green in place and we need to use our communication technology efficiently.
And but in terms of sustainability, just here to say that we have initiated a project that will have a separate sustainability report on Pexip's ESG impact and we're scheduled for a Q2 delivery on that one. So stay tuned for that. So ending up this session, summarizing that, we can again say we've used this rocket before, but it's really saying that we are on our journey towards greater things. We're on the next phase of our adventure. With that, we always keep in mind our history.
So prior to the IPO, we showed we could grow, but also that we could be very efficient with capital. And that's something we take with us as we are deploying the SEK 100,000,000 we raised doing 2 things, supercharging our sales and marketing efforts as well as expand and innovate on our product offering. So with that, I also have a quick product update for you guys. First one being on the Pexip private cloud. We talked a bit about that in the last quarterly presentation.
Now it's time to say that we have been progressing well on our pilots and we're ready for a commercial launch in Q4. I'll actually leave you with a quote here from Rob Arnold in Frost and Solven saying that it's the ideal time to address a demand that they have been tracking that there has been a reticence amongst larger organizations to move to the cloud due to data privacy and control concerns and that the new PEXI Private Cloud meets this head on. We feel that as well. This is a solution that is basically bridging the gap between cloud and control and the pilots show incredible potential and momentum with enterprise and managed service providers, global interest also focused in more data conscious markets like United States, Germany, let's say a little bit of across Europe at large. And the commercial model has been well received so far and the technical solution is verified.
So we are looking forward to seeing traction on this as we launch and get into the new year. Also quickly on our cloud service, always a lot of things happening there. 3 things the last quarter worth noting. One is that full HD is now applicable for everyone, any type of meeting, any type of gateway. Our adaptive composition technology is now also on the service initiated as a tech preview and some of the flexibility we have on our software is now also moved to the service, this time for a bit more of customized branding that a lot of customers appreciate.
So with that, I am super happy to invite Karl Gento, our President of Americas to the stage, leading Americas but also a good friend. So Carl, looking forward to hearing more about Americas in Q3.
Great, Orest, and thanks for this opportunity. The headline from the Americas is that we continue to grow and evolve our business and deliver some great results at the same time. And so let me take the people side of our business first. As Oscar noted, our growth strategy is predicated on increasing the capacity and capabilities of our team to provide better coverage and focus. And we've been acutely driven to build out our team.
We added 14 new members to the team in Q3. We've added 40 year to date. So we've doubled the size of the team to almost 80 people. And inside that we've been very focused on not diluting the culture and the values that we hold so dear inside Pexip, which we view as a competitive differentiator. And I'm super proud the team that we brought on and the prospects we have for the future.
On the financial side of the house, we also had a great Q3. The absolute increase that we made to our ARR in Q3 was 3 times that of what we did in Q3 last year. And on a year to date basis, we've added 4 times of what we did for the same period last year, which we're very excited about. That included 11 transactions of over $100,000 a piece, dollars 9 to new customers and $2,000,000 to net new customers, sorry, to existing customers. And inside that, what we see as being the drivers is customers are asking for better security in those meeting experiences.
There's infrastructure that they use to support their endpoints that is going end of life, end of service that they want to replace with a more modern platform. And of course interoperability that Oddsberg just talked about earlier. Those are what's driving the business and we're seeing that across all aspects of our sales channels. So our partner community is engaging and driving towards those kinds of customers in government and healthcare and also in enterprise. And so let's talk a bit about that.
On the enterprise side, we're growing our team. We've been building sales pipeline. We have a healthy sales pipeline. We added 10 new Fortune 1,000 customers in the 3rd quarter that included the likes of McDonald's, Nationwide Insurance, the Create Retail Group, which includes QVC and Home Shoppers Network as subsidiaries and a number of more customers. So great performance in the enterprise sales theater.
From a healthcare perspective, this has always been a strong vertical for us. We've got some of the biggest and best healthcare providers leveraging Pexip for their telehealth solutions. This year in Q1 when the pandemic hit, what we saw were that hospitals closed and prioritized COVID patients. And as they did that, those healthcare providers needed to find an alternative way to deliver healthcare. And they turned to telehealth as the means to do that.
We saw our existing telehealth providers blow up in terms of usage. Companies like or agencies like the Veteran Affairs went from doing some 2,500 sessions a day to well over 40,000 sessions a day and we saw that across a number of our customers that needed to evolve very quickly. And we've been adding new customers along the way. This quarter, proud to say that we added the U. S.
Coast Guard Office of Health. For us, what that means is they leverage Pexip for their platform and when you look at that in conjunction to the Defense Health Agency and the VA is that Pexip is the proud platform for the telehealth solutions being offered up to the active military as well as the veteran community and we're very honored to be part of that program. In the government sector, our Q3 corresponds with the end of the government fiscal and a lot of the German activity aligns to that timeline. We added a number of new agencies and departments to our roster, including Bureau of Reclamation, including NASA, which you saw a logo of and including the U. S.
NORTHCOM. And maybe I'll just take a few seconds to talk about those latter 2 and bring more to light. So NASA, I think everyone knows NASA. It is a federal agency chartered to for the Civilian Space Agency program and they've got some 16,000 teleworkers. They're very heavy users of video conferencing.
They've got 3,000 Cisco video room systems in their portfolio. They had a challenge. Their infrastructure was obsolete and not supportable. They needed to find a new platform. What was important to them was the ability to 1, provide investment protection on those endpoints 2, was to make sure that they had a secure platform that they could self host.
And 3 was to deliver better meeting experience. And we competed against both Zoom and Cisco in that play and we're successful in bringing NASA along as a customer. In the case of USNORTHCOM, they are 1 of 11 unified combatant commands under the US Department of Defense. Their mission is essentially to defend, protect and secure the U. S.
And its interest and they do that partnering with others, including other federal agencies like FEMA and DHS and also with the state officials. So in their use case, Polycom units. But more to the point is they wanted a platform that they could leverage in a self hosted environment on their classified and their unclassified networks and they needed to have a solution that they could scale very quickly because a lot of these missions just happen and they need to be responsive. So they needed to scale quickly and they need to be interoperable because they're working with other departments in the pursuit of those missions. So to that extent interoperability was key.
It was right down our lane. This was right in our sweet spot. And we're really happy to have those 2 customers and our partners work very closely with us to win that business, which is a testament to our go to market model. And that would be a quick update from the Americas, Soeff.
Thanks for that Karl and great stuff and also really enjoy having the Pexip Astronaut on the moon.
So
with that, I'll move over to sales results and financials. And for that, we have Oestan Hem, our CFO.
Thank you, Oas. Let me start off with our subscription base, which we measure in annual recurring revenue. Pexip ended Q3 of 2020 with an ARR of $73,000,000 That is 70% up from the current from Q3 of 2019. For Q3 alone, we added $7,000,000 in additional ARR, and that is a 2.6 fold increase compared to the corresponding number in 2019. If I move on to next page, I want to show you a bit of where growth is coming from.
And I'm happy to see that all geographies and all product lines are contributing significantly to our overall growth. In terms of geographies, both EMEA and Americas have been growing with more than 70% over the last 12 months. And also very happy to see APAC increasing its growth as well now to 37% year on year. In terms of products, Pexip has 2 main product areas: our cloud service, which is for customers that want Pexip to handle operations and for them to just consume a video service and our software for customers that want to have more control, more privacy and more customizations. Our software area is the largest revenue area and contributes the most in absolute growth and is growing 55% per year, whereas our cloud service has now passed a milestone of 100% growth and ended Q3 with 101% growth year on year.
This is a milestone that we're obviously very proud to pass. Another perspective on where growth is coming from is looking at new and existing customers. In terms of new sales, Pexip delivered 55% growth from new customers and where is where most of our growth is coming from. That means that $23,500,000 of our current ARR is from net new customers that are new to Pexip over the last 12 months. For existing customers, we had a net retention of 115%.
That means that our existing customer base a year ago is on average 15% higher when measured in ARR. That is significantly up from where it was in 2018 2019, although slightly down from end of Q2 when it was 118%. The main driver for the loss difference is a slight increase in churn from 8% to 10% related to an increase from smaller accounts. While smaller accounts is not the main target segment for Brexit, we have an opportunity to be even better at customer success for those accounts, and that's an opportunity that we're actively pursuing to seize. Moving on then to the P and L and recognized revenue for the quarter.
Pexip delivered €136,000,000 in Q3, that is Norwegian kroner, which corresponds to a growth of 68% year on year. Reflecting the strong ARR growth, cloud services is growing the most with 133% per year. The majority of the impact is from a higher ARR base, and it's also supported by a higher USD to NOK exchange rate over the last 12 months compared to the period before. For software, Q3 is normally a seasonally lower quarter as there is a lower amount of annual renewals and new subscriptions as vacations and enterprise buying behavior typically in EMEA impacts the number of deals being closed. Americas, as Karl pointed out, is a bit of an exception and delivered a very strong quarter with a 99% growth in recognized revenue.
APAC, on the other hand, had a decrease mainly related to a large single customer that renewed in October of 2020 compared to September of 2019. And for software, we recognized the majority of the revenues at the point in time of delivery. That has a significant impact, which is also the driver for the seasonality in our quarterly recognized revenue. In terms of gross margin, that is also then affected by the seasonality of software revenues and is up 92% for the quarter, although our absolute cost of sales is more or less in line with Q2. Before moving on to operating expenses, I want to talk a bit about the progress on our acceleration plan.
As OS and Karl also mentioned, adding to the team is key to increase our future growth, both when it comes to increasing our sales capacity, is a key element of supercharging our existing sales model as well as continuing to add high quality software engineers so that we can accelerate our road map and meet some of the unmet needs we see in the market. We've also made sure to strengthen our corporate functions within HR, accounting and operations to make sure that we as a company scale well in this period of immense growth. We're doing this while continuing to be focused on also investing and building our culture to make sure that we stay the same as a company. This obviously has an impact on operating expenses, especially when it comes to salary and personnel expenses. For Q3, we also have an impact of the salary and personnel on salary and personnel expenses of the prioritization of holiday pay, which relates to Q2, making the absolute growth from Q3 to Q2 somewhat bigger than it would be otherwise.
On other operating expenses, we've
increased our investments in marketing
in order to capitalize on the overall increased demand of video, and we also see a significantly higher overall activity level in the company. That being said, we are also seeing savings, especially related to travel as the travel activity is significantly lower in Q3 of this year compared to Q3 of last year. In total and as a consequence of the planned exploration investments, we have a negative EBITDA of NOK24 1,000,000 for the quarter. To put the pace of exploration in perspective, 45% of people and roles in Paxip are new to the company over the last 12 months. And in our business model, either if you're in R and D and you're developing a new product for us to sell or if you're a sales rep and over time building a portfolio of recurring revenue, the full revenue impact of any new role will accumulate over several years.
Then obviously accelerating as fast as we are will have an impact on short term EBITDA. Taking 45% of our OpEx, that corresponds to NOK 67,000,000 in Q3 operating expenses. Moving on to cash flow. We have a very solid cash position after our IPO to fund our exploration plan. And this cash we are now starting to deploy.
Following the investments in growth, we have a negative EBITDA, although somewhat reduced in terms of cash impact due to share based payments, which are recognized over the P and L. We have capital expenditure of NOK 11,000,000 for the quarter, which is 25% higher than Q3 of 2019 and is growing less than other cost items. We also have a negative impact on cash flow from net working capital due to somewhat higher trade receivables as well as higher contract cost assets as we paradise our commissions over the time of the contract. On trade receivables, we're very happy to see that we continue to be successful in collecting payments from our partners. And the Pexip channel partner model ensures that we have limited impact of any specific end customer and issues related to creditworthiness due to the pandemic.
Overall, we exit the quarter with a cash position of over NOK1.1 billion. And with that, I give the stage back to you, Lois.
Thanks, Lothorstijn. I'll summarize this then. In terms of Q3, really 2 big things for us. First being, of course, continued strong top line growth. We have added a range of really high profile customers, being it enterprise or public sector.
We have had an outstanding quarter in general, but in particular in the Americas. And overall, strong both ARR growth as well as year on year growth when it comes to revenue. 2nd, on our acceleration plan, this is the most important thing for us in terms of building a future Pexip. We are super happy that we are able to continue to build a strong sales and R and D capacity and community. We have for the 2nd year in a row been named a Visionary in the Gartner Magic Quadrant.
And in terms of the customer base acquisition we did in Q3, we have worked on that and expecting that to positively impact our Q4 ARR. And last but not least, as Oostarne was referring to, we have a very solid cash position to continue to invest in our growth. So short term, we are doing really well. In terms of the medium and long term outlook, we remain positive, if anything more We remain positive, if anything more positive than before. It has got to do with how we see that IT requirements and enterprises are shifting to a hybrid workforce post COVID-nineteen and preparing to do that to some extent already.
In that new reality, we believe our technology is even more uniquely positioned to meet the requirements. And second, we are continuing to execute on our growth plan. We are continuing to increase investments in people. We have said before, we are saying again, we will be around 3 50 to 400 employees by the end of this year. And we'll not stop there.
Furthermore, we are going to deploy up to 70% of the raised capital during the next 3 years. In terms of the long term target and maybe the most exciting thing for us when we have a look at how we are doing and then and how we are progressing for the future, the outlook as well as our ability to build a fantastic team in Pexip. We are with that putting our $300,000,000 ARR target a year earlier and targeting now to get to there by end of 2024. So really an exciting quarter for us and we are really looking forward to the future. Part of the future is Investor Relations.
So on logistics there there is on the December 9, we are setting up an Investor Tech Summit for the ones of you that want to have a little bit of a more deep dive into what we offer sneak peek into some of the things we are working on, but putting that into perspective of how it's applicable for our customers and how it relates to our competitive differentiation. And so that's for the ones that want to join there, welcome. On January 7, we are giving an update on our annual recurring revenue coming out of our Q4 bookings. And then February 11, we are having our next quarterly presentation, then the presentation for Q4. So with that, I think we should open up the floor for questions.
And we'll just zoom out a little bit here, so we keep our social distancing. Now invite back again, Oestein.
Thank you, Oeste. While we're now opening for Q and A, we're also bringing some of the analysts that follow Pexip and invite them on stage and ask them if they have any questions. Then following that, we will also spend some time on the questions that have come in through mail and chat over the during today. I will start with you, Oksael. Oksael Helmutgen from ABG to ask your question.
Yes. Thank you. Congrats on a very, very solid quarter. I have a lot of questions, but I will serve myself to 1 or 2 and let other ones ask also. But maybe we should start off with the increase in ARR target.
I think it's fair to say that the business momentum in Exip has been better than what you guys expected when you initially made your target. And can you say something about how much of the increase in the target is driven by the fact that you are now at a higher base ARR? And how much is driven by a revision to your assumption about growth going forward? Is it possible to do that split?
That's a good question, Aksel. I would say if we have to make a split, I would say it has very little to do with our current ARR, but it's a perspective on 2 things. One thing is the market and the position we see that we can have in that market and it's our ability to execute and the latter being maybe the most important because it is hard to build as fast as we are doing a organization being it from fantastic engineers to fantastic people in sales and marketing. And we're really seeing that we are able to assemble what I believe is one of the greatest team has seen ever in the area of video conferencing. So to your question, the biggest part of our revising the targets is what we see of our capabilities to build the business.
And as you know from before, in terms of our growth capacity is really around sales and marketing resources, where our business is super scalable, but when it comes to the delta annual recurring revenue, we see we're able to build there for sales and marketing. And of course, we are also expecting to have something coming out of the great engineering team. So even more if you want growth ARR capacity per seller as we go forward.
Thank you, that, Orest. I will do one more. So we saw you onboarding a lot of new high profile logos this quarter. Can you comment whether they came in the Infinity or the service segment or a blend? And following up on that, can you comment on how the launch of the private cloud business can impact revenue over the, say, next 12 months?
And also whether you see potential to, say, switch current software customers over to a private cloud segment and how this may impact you guys financially?
I can let me start with the part of the question. In terms of our largest customers that we've added during Q3, they've come in some on software and some on cloud service. Especially in public sector, there is a preference for software still. We see that with a lot of the large public sector organizations, whereas on the enterprise side, it's more a mix. So several customers still being comfortable in buying this as a cloud service.
When it comes to the impact from our private cloud and how that will hit revenue for next year, It's early to give specific guidance on that. What we do see is that there are 2 main drivers for this. On the one hand, it will allow us to capture more of the revenue from both existing large enterprise accounts on software as well as new large software accounts where we basically do more of the work and hence are able to capture more of their spend. On the other hand, we also think that this will enable us to deliver the software product into segments that otherwise would have found this to be too complex to manage and will now be able to still get the benefits of software control, data privacy customizations, but with a lot easier implementation. And then we think this can open a new segment for our software offering.
Thank you, Eitan. And just a quick final follow-up because this private cloud segment, it seems to sort of differentiate you in the market Can you comment on the competitive situation for this private cloud segment? And then I'll go back into queue.
Now let's say, Gudon, I mean, the competitive situation is that this is a Pexip first. So you might have seen similar kind of things like this in other areas of software. But when it comes for to video conferencing, this is a Pexip first. It's not a first in the sense that we've had managed service partners and system integrators basically creating single instances for different customers, but it's a first from a manufacturer to be able to do this in a very, very scalable way. And as such, I think it will be very interesting to see how we can fare with this both in large enterprise and also midsized enterprise because we think this is a offering that really, as we've said before, combines the best of both worlds.
You get stuff as a service, but also you retain a lot of benefits of having a dedicated solution. Privacy and integrations are some of them.
Thank you for that insight. I have more questions, but I will open the floor for others as well. Thank you.
Thank you, Oksen. Then I give the word to Dennis Berggren from Pareto.
All right. Thank you. A question regarding the interoperability with Microsoft Teams because we have seen some quite impressive figures from them as well. Can you say something about how this has affected your pipeline development? And also, if possible, provide an update on the sort of split between pure Pexip customers and interoperability customers and hybrids and so on.
Yes. With regards to pipeline, you're absolutely right and that I think both our pipeline in general has never been stronger than it is now. But also in terms of the share coming from Microsoft and Google, is also significant. And I still think there is momentum sort of ahead of us in terms of that because as organizations have been working mainly from home, both in Europe and in the U. S, the need for interoperability hasn't been as acute as it will be once they now come back into the office.
And I think that's an opportunity for us to capture in the coming months quarters. Then in terms of the share of revenue, it's still fairly sort of aligned to what we've said before in that 25% is related to interop or pure interop with 50% somewhat less being related to pure meetings or pure Pexip technology. And then there's a combination in between of customers using both, which is more difficult to quantify.
You're entitled to at least one more question, Dennis.
Okay, perfect. So do you have an estimate of how much of the Delta ARR you're seeing year to date that could be assumed to be sort of short term COVID-nineteen related commitments?
I think that's very difficult to give a good answer to. There's definitely some, especially in sectors such as health care and for companies that went from working mainly in the office to working fully virtual. But I also think there's significant benefit in upselling some of those customers that also have been getting a significant amount of free capacity to get them through this difficult period. Because I think for Pexip, it's been important, yes, to capture the revenue opportunity. And we have grown our net retention rate from 100 to 115, but it's been even more important to sort of use this opportunity to build a solid partnership with our rotation and opportunities, but I also think there's tons of upsell opportunities that are still in front of us.
I think we were very cognizant around this at the end of Q1 and during Q2. So to your point, Stan, we you never know exactly what will happen, but we tried actually to plan for not having too high risk on these customers and also do the right thing, which was to help them with a lot of free capacity to get them over the peak.
All right.
Thank you
very much for taking the questions.
Thank you, Dennis. Then I believe we have Christoph Verhejo Galland from Arctic with us online.
Yes. Hello. Congrats on a great quarter. My question is connected to the how long time does it take for the newly hired sales staff to get up to speed? Can you provide some guidance on that?
I still think that our well, the historic estimate is the best one to use. So it takes us between 9 to 12 months to get a sales rep up to speed on average. That being said, especially in this type of market, we have some examples of reps far outperforming that. And just this quarter, an example of a rep coming on in May and now signing a Fortune 500 logo for us. So it's definitely possible to do this faster.
But on average, 9 to 12 months is still the good long term estimate.
Okay, very good.
Christian Stoehler from Carnegie, are you online?
Yes. Can you hear me?
Oh, yes.
Perfect. So one question from me, please. I was wondering if you could elaborate a bit on the churn numbers. What's driving the increase? And how do you expect churn to develop going forward?
Happy to. So I think on churn, there is no one account that is, call it, creating this increase, but it's a contribution for several smaller accounts. And I think we are in a period of quite a lot of change within our industry. And while that creates a lot of opportunities for us with 55% growth from net new customers, it's also natural that, that creates a bit more movement in our existing base as customers have scrambled to find their video solution. And I guess that's also a going forward in that we have now a much larger share of new customers.
And newer customers typically have somewhat higher churn than existing customers because they are more embedded with Pexip and have used their solution over a longer period of time. That being said, I think we as an attacker in our market have more to gain from a market with a bit of movement than we have if everyone was sitting comfortably with their existing provider.
Thank you. And one more question from me, please. I was wondering if you could elaborate a bit more on which if there are any specific markets or verticals that you expect a cloud offering to open up for Pexip or the private cloud offering?
That's a good one. I think what we have seen, it's been to a large extent across verticals, but it's typically larger enterprises. It could even be public sector organizations that are data conscious, want to have this type of solution and it fits them. But we do expect that, for instance, in healthcare, there will be some very interested players in this offering. But I wouldn't limit it to any given vertical.
We are seeing interest in basically everything that the typical target segments that we're in already.
Okay. Thank you very much for taking my question.
Wonderful. Then we've been through the 4 of you. Okshill, did you have any other follow-up questions?
Yes. I do. So one thing that has happened lately is the announcement about the vaccine. So can you comment on how sort of a back end or more when people are getting back to coming back to work, back to the office, then you will see, let's say, larger, more structured investments into enterprise video conferencing and maybe then back to normal should impact you positively. I don't know.
But can you comment on the vaccine announcement and then how you view this?
Sure. I mean, I think we are as happy for any development towards a post COVID world as anyone, as people, but also as a business. I mean, that was part of the message we tried to do today. We have done it in previous investor meetings as well where we have said that for our business and for our target customers, COVID-nineteen in itself is not necessarily that big of an advantage per se. Yes, there was a spike in demand from existing customers immediately.
But we really thrive when we can work with enterprise IT in structured processes where they also are combining needs that is with their offices, with their home workers and across these different networks. And we really look forward to a post COVID-nineteen experience also for from the business side. So we think that the best has yet to come when it comes to Pexip and our go to market.
Very good, Orest. And one question because my calendar says, yeah, November 10th. So we're nearly halfway into the final quarter. I noticed in the report that you said that Q3 cloud service growth, which was very strong, was, say, helped by growth in a large account in Americas. Is this something that will, say, revert and slow down in Q4 growth from that account?
How big was that effect? And can you give some say color on how you're trending so far into the final quarter? Yes, please.
Yes. So in terms of the growth, I don't expect sort of additional growth from that single customer. That being said, I do expect sort of the same revenue level from that one customer in Q4 as I did in Q3 as well as in the coming quarters. So not entirely sure if I understood your question, but you are correct in that we did secure a large win in the Americas and that has will continue to have an impact in the quarters to come.
And regarding development in Q4 so far?
I think in terms of Q4, we'll get back to that once we have our Q4 announcement in early January. Do not spoil the surprise.
Very well. Yes, okay. That's it for me.
Thank you, Oksut. Dennis, did you also have any follow-up questions?
Well, if you
give me the chance, then I'll ask about the because we have seen some launches of fully end to end encrypted services out there. And you have at the same time now quite announced some impressive customer wins that should mean, talk in favor of your security aspects. But what's your view of these launches? And are they somehow affecting your view of your unique value proposition?
So that's thanks, Bert. That's a big question. What I'll start with, I will actually say we will cover this a bit in our Investor Tech Summit, where we will have Giles, our CTO and also Chief Security Officer. He will actually have a piece on this because security is a bit complex. I think the key piece that we are differentiated on is not only the actual data in the conversation, but also who is talking to who, which for many being at large enterprises or public sector organizations is equally important because as a large enterprise, if you know who they are talking to, it might be M and A type of rumors, etcetera.
And you definitely want don't want anyone to know all who is everyone that is talking to this psychiatrist during the day. So I think this is an area where we are uniquely differentiated and yes, you should look forward to hearing Giles, our CEO, talk about it. There is also something on our web page. He has been doing a piece live for Reuters where he's also talking about this. Thanks for that.
Gillian, is there any other questions from, call it, Demassels?
Yes. There are several other questions. Many of them have been addressed already in the presentation and also in the live questions. But there are a few additional ones if we have time to take some of those. Yes.
So let me see. Are you worried that Pexip will be outrun by the other big players in the video conferencing space like Microsoft, Zoom and Cisco?
That's a good one. I think starting with that, it's a lot of things to worry about. But when it comes to competitive differentiation, that is actually something that we sleep relatively well on. And that is basically due to we partly covered some of that today in terms of how we feel our offering is differentiated. And it has to do with our background.
It's not our first rodeo, right? We were started basically competing with the giants. We are continuing to do that. And I think beyond you being invited to be video experts, every one of you to the extent that is possible, I think the key is then really look at how we are doing on customers. So just in Q3, the customers were are winning there.
That is in competition with all the giants out there. And that is just think about the potential we have given if we have been even more known and more people are coming proactively to us. So I think for us in the future as a challenger, given our track record in competing with the call it the large players, I think we only have this is just the beginning of what we're capable of.
Next question. Looking at your competitor, Zoom, they have an expansion rate of expansion rate of 130% compared with Pexip's retention rate of 115%. Do you have any comments on this?
Yes. I think one big difference in how Zoom goes to market and how we do it is that Pexip's go to market model is built on enterprise sales. That means that we typically have an enterprise wide contract to start with, and we set off with a fairly large win in the initial contract. That's different than the typical go to market model of Zoom and also some of the other SaaS players in that you start with a few subscriptions and then you aim to sort of grow within the account and over time sort of secure that enterprise agreement. So those 2 go to market models will have different net retention rates.
Yes, it's somewhat lower than Zoom's, But I'm quite sure that our initial lands are also significantly larger than what Zoom has to offer.
Okay. And there's been several references to COVID and the effect of COVID during the presentation. But there's a question here on how much has the COVID-nineteen period increased the long term market opportunity for Pexip?
It's a good question. I think we partly rested. And I think simplistically, I think it hasn't impacted our long term potential that much. I think the key thing for us is that maybe COVID has accelerated well how people use video. That's important.
So it's really the market opportunity ahead of us plus our capability to execute and accelerate our business. That is the key reason that we are also lifting our long term targets.
Okay. And one question more, 2 questions more?
One more maybe.
One more? Okay. Final question. How confident are you with the 2024 guidance you have given?
The short answer is that we are very confident. The little bit more nuanced answer is that the reason we are confident, again, it's not because we're super happy we have done well in Q1, Q2, Q3 this year, but that's not the main reason. Again, it's around this opportunity we see ahead of us, the new normal, also for enterprise IT and video, where a lot of companies will need to figure out how do they combine the best of a hybrid working model with everything from PCs to the boardrooms where you are actually able to get the best possible meeting experience. You don't want to have video fatigue and you want to do this in a way which you take care of security and privacy. And with those needs in place as the drivers for how we think about our product evolution and I really mean it I really mean it when I say that we are basically now assembling the best team this video industry ever has seen.
And I'm super proud and hopeful for what we are going to deliver in the next few years. The best has yet to come for Pexip.
Okay. And then there is there are more questions on the list here. So I just want to say that we will get back to everyone who has answered questions after the presentation.
That's great. Thanks, everyone, for joining. Any final words, Thurstan?
No. Very much appreciate your time, both for you on the stream and also for the analysts that have joined the call. So thank you so much, and looking forward to seeing you all again in Q4.
Thanks a lot.