A warm welcome to the Modelon investor presentation for Q4 and year-end 2021. Without further ado, I would like to hand over to the CEO, Magnus Gäfgen, and the CFO, Jonas Eborn. Please go ahead.
Thank you, Jenny. Good morning, and welcome everyone again to this presentation of our Q4 and year-end report for 2021. My name is Magnus Gäfgen. I'm the CEO of the company and one of the co-founders. I have also Jonas Eborn, our CFO, and also one of the co-founders. I will give a brief introduction to the company, then some business highlights of the Q4 . I'll hand over to Jonas, who will provide financial updates, and after that, we'll have a Q&A session. I believe that you are all invited to hand in your questions by email during the presentation. Modelon, we are a business-to-business software company in the computer-aided engineering segment.
This means that we are helping our customers to digitize engineering workflows, related to the innovation development, and operation of high technology products and systems. That could be anything from a car to an aircraft or a power plant. In digitizing such workflows, you need to have at hand a digital representation of your product that can reproduce the behavior and the performance of your product in the digital domain, and that is precisely what we offer. With our tools, our customers can develop models, digital models of their products, which they can simulate in the digital domain to understand performance and behavior of engineering designs before they are built in the real world. This gives tremendous benefits to our customers in that they can shorten the time to market.
Working in the digital domain is much faster than traditional methods and also allows a much more efficient way of collaboration among engineering teams who are today typically distributed. It saves a lot of cost in that you can reduce or sometimes even eliminate the need to use physical prototypes in development and testing. In the end, you will arrive at a better performing and higher quality product because of the methods that you can employ exclusively in the digital domain. We are serving companies, technology enterprises around the world with these solutions in various industries, and you will see some examples further on in the presentation. We were founded in 2005. We are currently around 100 people.
We are headquartered in Lund, but we are distributed in ten offices in six countries in Europe, North America, and Asia, which means that we have a very high level of internationalization for our size. We also have around 20% of PhDs among our employees, and that speaks to the fact that the technology and solutions that we provide are of very high entry threshold technology. It's very sophisticated software that we develop. We have been doing this for 15 years, and we have been growing with our own profits until a couple of years ago when we decided to bring in investment capital for the first time.
The reason for that was that we identified the huge, enormous opportunity to take our software technology and put it in a cloud platform, and with that, pioneer our market and segments with a cloud-native systems modeling and simulation solution. We started an aggressive investment into this to exploit this opportunity that led to the first release of our flagship product, Modelon Impact, in the Q3 of 2020. Based on the positioning of this platform and the size and growth of these simulation and analysis markets, we set out ambitious targets to grow our annual recurring revenues to SEK 100 million by 2024.
At that point, also turn cash flow positive again after the current investment period, go into a more mature phase with the product and start approaching the longer-term EBIT margins of 20% or more. In the early phase of development of Modelon Impact, we had a collaboration with a large U.S. customer who cofounded part of the development. This was from 2018 until the first half of 2021, as highlighted in the chart here. With the IPO in 2021 in the spring, we shift the funding of the development and commercial investments to self-funding.
We are very pleased to see that those investments in 2021 are making the result that we are taking off with our ARR growth to the level of 31%. With that, we shift into the Q4 details. We continue to look at the ARR. This is our key success metric. This is our key target that we have set out to grow. We again are very pleased to see that we are maintaining the growth rate, quarter to quarter growth rate of 8% for the third consecutive quarter. This means that in the last three quarters, we have had a growth rate that corresponds to an annual growth of 36%.
We are also very pleased to see that the growth, ARR growth of Modelon Impact, which is at the center of our growth strategy to drive the growth, is increasing with as much as 39% in the Q4 . This is a mix of new sales, but also migrations from existing customers that shift from other Modelon solutions to Modelon Impact. The migrations do not contribute to the total growth of ARR, but it's a clear indication of the attractiveness of the platform. We continue to see new accounts to dominate the sales mix for Modelon Impact but also see existing accounts contributing more and more.
We continue to see also a healthy lead generation in the Q4 , which makes us confident that we have the leads in our pipeline to continue to support the growth rates that we have established. Some more details on the pipeline activity, we are addressing four target industries, automotive, energy, industrial equipment, and aerospace, and we see activity across all those segments. We're showing also on this slide a sample of customers in these industries that we have. I'm sure you all recognize that the logos you see here represent companies that are very well renowned leaders in their respective industries and representing the highest possible demands on the tools and the suppliers they work with.
We are of course extremely proud that they have chosen to work with us and use our software for such critical activities as their innovation and product development activities. We're also showing on this slide some of the Modelon Impact wins from the Q4 in the respective industry. In the automotive here, we're not disclosing the names yet for competitive reasons. In the automotive industry here, we have a Japanese mobility conglomerate, large company, a European automotive OEM, also large, and a global automotive T1 supplier, also huge.
One thing that's interesting with this is that as a consequence of the electrification going on in that industry, the type of applications that those customers work with are quite different from what the traditional use cases in automotive industries. You're all aware, I believe, about the Tesla strategy to work with a complete value chain from energy production, distribution, and charging and into the car. This is going on all over the industry, which means that the type of applications these automotive companies work with are often related to renewable energy storage, and the infrastructure required for electric vehicles as well as the actual vehicles. That's very exciting to be part of.
In the energy industry, we continue to see a strong focus on clean technology that includes fuel cell and hydrogen applications. We're also seeing here on the aerospace side here, we have a aerospace company long-term customer with us that started to use Modelon Impact last year and then grew their use of Impact by 7x in the Q4 . That's a new sales and migration, very meaningful for us.
To look a little bit more at how our business maps to the industries and territories, this is a split of our software business per territory, and notably here is that we have a good balance of our business globally in Europe, North America, and Asia, pretty much representing the total market size of the simulation and analysis business across regions. Also interesting to see here that on territories that if we look at Modelon Impact business specifically, America stands out as even a little bit stronger than the total business. We see more activity there.
We see activity all across all regions, but America has the highest momentum at the moment. Likewise, if we look at the splits across industries, we have a fairly good balance there. You can see that the industrial equipment sector is a bit smaller than energy, aerospace, and automotive. Although I should mention that we are seeing a good growth in our pipeline with the prospects in the industrial equipment sector, and that's specifically on HVAC applications for buildings. We also here see that the split of the Modelon Impact business is a bit different. As we have reported earlier, we see a lot of momentum and activity in the energy sector with Modelon Impact.
Impact new orders are at 35%, which is more than double that of the total software business. Again, that represents the momentum we see in these type of applications. Also see here that Modelon Impact renewal orders are dominated by aerospace, and that's also an effect of this U.S. customer and the large migration that we did in Q4. What is then driving these industries and companies to use our tools? I want to relate it to these three mega trends, which are very important to us and driving not only our business, but also the total, I would say, simulation and analysis market. We have that of the trend of digitalization I already touched on in the opening.
I just want to repeat here that in digitizing the engineering workflows, the engineering work, you need to have a model of your product, and that is precisely what we provide, which means that we are right at the center and offering a critically important component in these digitalization activities. This is a trend that has been going on for many years, and it will continue to go on for many years. It's an ongoing opportunity that supports our business. We have, of course, that of sustainability or clean technology. We all know the immense pressure all industries are put under to improve their products and systems to be more sustainable, more clean, and so on.
That requires a reckless pace of innovation and putting new improvements on the market. Simply not possible to achieve without using the type of solutions and technology for simulation that we provide. We are very happy to see that many of our customers are using our products precisely within these type of activities. In the end, we have also the trend with the SaaS Cloud. Again, we are pioneering our segment systems modeling and simulation with a cloud-native platform and for a SaaS business model. We are very pleased by the position we have in this respect on the market.
Looking at some more detail at the actual market, this is the projected estimated growth of the simulation and analysis market until 2024. This is data from an analyst house in the U.S. called CIMdata. They are very good at the PLM and simulation industries. They publish very good, very expensive reports. We note here that they estimate the size of this market to $7 billion in 2019 and then estimating a compound annual growth rate of almost 8%.
We can relate that to our growth and our growth targets, and we note that we are currently at a pace which is more than 4x the market growth rate, which is of course good and meaning that we take share as we should. The reason we are confident in these goals and also that we can deliver on these goals is that the market trends that drives the growth we match very, very well with our Modelon Impact offering. Meaning that we support these early-stage modeling and simulation capabilities. That's the innovation part, typically in new technology.
Democratization means that many, not only specialist engineers, but many types of engineers should be able to work with these digital simulation tools, and our platform is designed to do just that. Interoperability and collaboration comes with a cloud-based solution. We're meeting the needs which have been even more pronounced by the pandemic and the transformation to more remote work. We're very well positioned in that respect. Simulation-driven engineering just means to have the functions and the algorithms in place in the platform to support the workflows. We have a broad array of such features on our platform and ever-increasing sets and cloud, of course.
This is the market we're operating in, and we are ticking all the boxes with our platform to be confident with the growth rates that we have set out to deliver on. Modelon Impact is ever evolving. It was only in Q3 2020 we released the first version. The Q4 was very intense with development activities for the release that was announced a couple of weeks ago now. Here we continue to deliver features that will support and drive additional growth as we move forward. That includes more stronger collaboration features on the cloud, improved automation.
Importantly, an online help center that can help self-onboarding and self-training of new users, something that's very important to scale the business. On the content side, we continue to bring improved support for the key industry applications in the segments we're addressing. Notably here, we have new functionality with respect to hydrogen, green energy applications, fuel cells, and renewable energy grid-connected applications. Also on the automotive side, we're doing some improvements on steady state vehicle dynamics analysis, actually, targeting customers we have in the motorsport sector. Also, our Air Conditioning Library now integrated in Modelon Impact. This is a feature-packed, very good new release that constitutes a major step forward on our strategic roadmap.
Also, at this point, we start to collect a good portfolio of Modelon Impact's customers around the world. We have also in the period started to plan for our first international user conference, where we want to bring our customers together in our vibrant event to share their successes and ideas. This is something we very much look forward to. It's planned to be in Stockholm in October. We have already now got preliminary interest from several of our customers to present their stories at this conference. That includes the ones listed here. Heliogen is a very interesting U.S. company backed by Bill Gates and others. They are developing concentrated solar power plants, renewable energy sector of a very sophisticated type.
Another very interesting customer is iQUANT. It was a new name to me, but they are a leader in intelligent asset management in Latin America. They are then delivering solutions for predictive maintenance using digital twins. This is where Modelon Impact comes into the mix here with them. NASA Jet Propulsion Laboratory, more specifically, may not need a closer presentation, at least not for engineers. They are developing spacecrafts and equipment, and they are also responsible for space missions to explore our solar system. That's, of course, pretty cool applications to be part of.
This is a customer that is really putting high demands on the tools they are using to develop the new groundbreaking or spacebreaking technologies. We have also one of the national laboratories in the U.S., Oak Ridge National Laboratory, working with the research and technology development related to energy also there. This is a benchmark customer that only work with the best technology and suppliers out there. We're very much hoping to hear their stories at this conference. We have SynErgy, which is a specialist company in Germany in automotive thermal management for electric vehicles, typically.
We all know the importance of optimizing the energy use on electric vehicles, and that very much includes managing heating and cooling in a good way. A lot of use cases for simulation and modeling in that respect, and this is one of the leading specialist companies in that niche. This is something we really look forward to. From this, we switch to something completely different. We are all completely horrified by the developments in Europe right now, the Russian aggression and the war in Ukraine, and recognizing that in the big picture, the effects of Modelon are not of particular importance.
Nevertheless, some comments on our side here is that, in form, we have no business exposure to Russia at all. We do not expect any significant effects on the simulation analysis market as a consequence of this. We are, if you wonder why we are a bit silent on social media, we have decided to leave room for more important information exchanges for some period. It will probably take a week or so before we start posting. We are also internally donating and matching employee donations to humanitarian aid to support those affected and in need because of this. With this, I hand over to you, Jonas, for the financial part.
Sorry, I was on mute. Thanks, Magnus. Let's go with the ARR first, if you switch the slide here. Magnus already spoke about this, and this is the main financial highlight. We're continuing to grow our ARR. The annual recurring revenue is consistently growing through 2021, especially from the Q2 and on, where we have the maintained pace of compound annual growth rate of over 35%. For the full financial year, it's 31% since the end of 2020. We're arriving at a software ARR then of SEK 37 million at the end of the year. Within this number is of course the growth of Modelon Impact, which is quarter to quarter growing by 39%.
New Modelon Impact sales and the migration that Magnus mentioned is driving the growth of the total software ARR. That's the main source of growing the total also. This is reported at constant currency, as we've mentioned several times before. This is the real volume growth of our software sales. We can move on, showing the revenue numbers. Of course, this is a different story. The net revenues are decreasing in Q4, and we're now past more or less the period of ramp down of this co-development project that Magnus also mentioned. This of course is still in the historical numbers, and that's the comparison we're doing.
Within a couple of quarters at least, we will be in a period where we are comparing with like-for-like numbers, and moving on past this co-development project, which was very important for us for our development of Modelon Impact. Now we're shifting into a self-funded development period instead, and that's what we're seeing in the numbers here. Also here note that about the revenue numbers are not FX adjusted. Since 2020 was a period with very high exchange rates, the impact, for example, of the change of US dollar exchange rate is major. The 7% decrease corresponds to an effect of $5.3 million on 2020 revenue, since we have a major share of the revenue in US dollars.
It's 70% US dollar sales in 2020. It's down to 55% in 2021. One effect of course is that the co-development project was entirely in US dollars. The effect of that project alone was SEK 4 million in 2020 from the US exchange rate. If we look at the software revenues, they are growing in the quarter from SEK 8.8 million to SEK 9.6 million. Over the full year period, it's more flat, SEK 36.4 million compared to SEK 36.3 million. Again, this is not FX adjusted, so here we can see that the comparison number with taking into account the FX adjustment is instead 6% growth of total software volume. The FX effect is SEK 2.2 million.
Service revenues, it's very much an effect of the co-development. Q4 in 2020 was sort of the last quarter with a very large volume with this customer, and of course that's the comparison that we're doing now in Q4. This is the shifting to financing with our own capital and the capital from the IPO. This is also now an investment phase that we're going into and is showing in the EBIT for the period, SEK -12 million in Q4. The development costs that are increasing, this is also very much an effect of shifting our resources from this paid co-development project into self-funding.
We have in the quarter growing about 70%, I think, and over the full year, growing development costs by 52%. All of those costs are taken as expenses. No activation of our development costs, and this is then the major part that we see in the EBIT. We do not expect this rapid growth that we see in 2021 to continue going forward. Our product sales and our ARR will be growing faster than the development costs. That's in line with our long-term targets, where we see that we will start to have cash flow positive in 2024, and beyond that, also have positive results. We're moving at a more moderate pace when we go into 2022 and forward.
I think we can move on then and look at the sort of tables and financial highlights here. Again, I want to mention we're now entering the phase of increased strategic investments. This is partly the development teams that I mentioned starting shifting into self-funded roadmap development now for the H2 of the year. Also, of course, that we're more active with Modelon Impact sales. We have some of our engineering staff also active in pre-sales and in support and very active in many of the leads and customer cases that we see moving forward. We hear praise from our customers for the fantastic engineering support that we provide as they're doing this digital change, moving into more digital workflows within their engineering development.
The total development cost in the period here is SEK 13.4 million. I already mentioned the growth there and that we're not activating any development costs. If we're looking at the cash flow, we have cash liquidity at the end of 2021, SEK 169 million. That's maintaining our investment pace since the IPO, and that we're expecting to also maintain according to our plans, with the long-term targets of being cash flow positive in 2024. If we look in more detail on the cash flow from the operating activities, we can see that in Q4, it's SEK -16 million roughly, and for the full year, it's SEK -19 million. I can mention that there's a strong seasonal effect in the cash flow over the year.
Typically, we do see more positive cash flow in the H1 of the year and then a more negative cash flow in the H2 of the year. That's also reflected in the Q4 number here from basically many license renewals, customer payments that are done at the end of the year or in the beginning of the year. This has a strong seasonal effect. Also, we can see that the full-year cash flow SEK -19 million from operations, it's stronger than the EBIT SEK -39 million. There are two effects that affect this. First, they're both in the increase in working capital. The first part is while we're maintaining a growth in software sales, these are prepaid annual licenses.
We're accumulating in our balance sheet prepaid licenses which correspond to roughly half of this effect that we see positive increase in working capital. The other half is due to the decrease in receivables, and this is again related to the large co-funded development project. Since that was at such a high pace towards the end of 2020, there were a lot of customer receivables in our balance. This is now completely removed since we have ramped down and all of those invoices are paid. That's an effect that we see in 2021 that we do not expect to have in the future. We will now sort of just take in new software customers and grow our business that way.
We maintain, of course, our financial targets that we will use the IPO capital going forward, and that will take us through the complete journey through 2024. At that point, we're turning into cash flow positive and then eventually also positive result on our EBIT. That was the main thing that I wanted to say here, Magnus, so back to you.
Yeah, this is an illustration summary, maybe we could say of where we are. We've brought in gross proceeds of SEK 150 million in the IPO last spring. As reported, we have planned to invest these funds in product and commercial growth in about equal proportions, expanding sales teams, marketing activities, partnerships. Also here we have, as some of you may know also, in our plans an expansion into China. Here, I want to also just mention that of course, with the developments in the world, this is something we need to closely monitor, if it's realistically part of what we do in the at least near future.
I should also mention that the expansion into China is a short- to long-term strategic move, meaning that we have not expected that China would contribute substantially to the 2024 targets. It is a large market and for growth beyond 2024, if that market is accessible to Western companies, it's of course interesting for us to be part of that. We're seeing again that the investments that we are doing now is having the intended effect. We are seeing the growth in the ARR taking off during 2021 and approaching according to plan on track towards the 2024 targets. With that, I think we have come to the Q&A part. Jenny, I hand over to you.
Thank you, Magnus, and thank you, Jonas. We have received several questions from Stefan Wård, Pareto Securities, so I would like to start off with them. The first one is for you, Magnus. Impact growth of 39% in Q4 compared with the 13% in previous quarter. Can you describe how the prospect pipeline has developed and conversion of prospects to new customers?
Yeah. That's a very good question. Again, I want to repeat and explain that the 39% includes new sales as well as conversions within the already existing ARR volume. It's not 39% new ARR that growth; it's new sales and migrations. The migrations are also very important in that they demonstrate that Modelon Impact is so attractive that our customers are leaving their shifting from their previous solutions and moving into this because of the benefits provided. If we look at the prospect pipeline, as I mentioned in the presentation, it is developing according to plan, meaning that the size of the pipeline is aligned with the growth targets that we have set out.
Again, the 39% is not representative in that sense since it includes the migrations as well.
Okay. Thank you, Magnus. Next question from Stefan Wård, Pareto Securities. You mentioned the seven-time increase in use from a new Impact customer in the U.S. in aerospace. Can you please give some more insight into how this customer is using Impact, what the potential is for further increase?
Also a very good question, and I understand the interest to understand more. I should start by saying that we are actively encouraging all our customers to share their success stories in testimonials or similar. On a general level, we can say that this customer, they are using Modelon Impact on the critical line in the development of new systems for commercial aircraft. As I explained, it's about digitizing critical line engineering workflows with the help of Modelon Impact to evaluate the system designs and also try them out, simulate how the systems perform under different operating conditions. That's then typically different flight conditions, different flight envelopes, as you say.
We cannot provide more detail than this without permission for the customer. Again, we're asking all our customers to actively share their success stories in more detail because we understand the interest.
Thank you, Magnus, and understood. Okay, another question from Stefan Wård, Pareto Securities, and this one is for you as well, Magnus. I would also like to get some additional input on the other major Impact customers, how the contract that was landed, current status, and anything on future potential.
We are employing this land-and-expand strategy, and that also means that the Modelon Impact business, we have a few customers with which has grown a bit larger. Otherwise, I would say many of our customers are in the land phase. They have acquired sometime in the past one or two years their first seats of Modelon Impact. Some of them have started to add seats, add more business. But it's a fairly good balance. It's a spread now across multiple customers. How the contracts are landed, well, we have a lead generation, which is a mix of activities that we do with digital marketing.
We get a share of leads from such activities that can be blogs or webinars or other similar campaigns. We also attend conferences. In the past couple of years, a lot of those have of course been also digital. But typically, we attend specialist conferences in the industry segments where we focus. That's usually a very good source. You may not get a huge volume of leads from those, but the ones you get are of high quality. Then we also look with our existing customer base, customers that we've earned during our more than 15 years and which are not yet on Modelon Impact, and we are, of course, inviting them also. This means land and expand.
Basically, all of these customers have a good potential for future growth, adding more seats, shifting, including more departments for the larger companies, doing more simulation, and thereby also we're charging more and so on. The current status, I would describe it as we're in the land and expand. We are mostly in the land phase. We're starting to demonstrate expansion capabilities. We are expecting expand business on existing customers to grow, but it will take some time before that represents a major share of the total new business.
Thank you, Magnus. Next question from Stefan Wård, Pareto Securities, will be directed to you, Jonas. R&D cost expense directly were SEK 13.4 million in Q4, up from SEK 7.8 million in Q4 2020 and from SEK 11.7 million. What level should we expect this item to be at for 2022?
Yes, very good question. I believe I mentioned this also in the presentation. We see a 52% increase of development cost for the full year in 2021. This is primarily due to the shift from the co-development funded project, where a lot of the Modelon Impact development was paid by a customer, and now we're shifting this into self-funded product development. So it's more or less the same people, but it's costs for Modelon since we need to invest in the product development. Going forward, of course, we do expect that we will have some growth in also our development teams. We're still hiring. We need to maintain a high investment pace in Modelon Impact to implement new features, but we're expecting those costs to go up at a more moderate pace. The product sales and ARR, they are expected to grow faster than the development costs.
We're maintaining, as I said, the targets to be cash flow positive and then go have a positive result after 2024. This sort of sets a limit to the growth. This is more a one-time effect in 2021.
Okay, thank you, Jonas. I continue with question from Stefan Wård, Pareto Securities, and you, Jonas. Cash flow from operations was negative by SEK 90 million for the full year 2021 and negative SEK 60 million in the Q4 . Can you provide any guidance or color on what to expect in terms of cash usage for 2022 compared with the net cash position of SEK 169 million?
Yes, thanks. That's also a very good question and somewhat complex relations and behavior to explain. As I mentioned, the seasonal effects are very strong. With the annual renewals of software licenses, customer payments very much early in the year in Q1, Q2, we typically see a positive cash flow first half of the year and then more negative cash flow at the end of the year. That's one effect that we see in the Q4 , primarily that for, I believe, the entire first half of 2021, we still had a positive cash flow, even though there was a negative EBIT in that period. If we look at the full year, the cash flow SEK -19 million is related to the EBIT SEK -39 million . There is a positive cash flow effect of SEK 20 million from working capital, changes in working capital.
As I mentioned, there's two effects in that. One major effect is the growing software sales. We have an increase in prepaid licenses in the balance of SEK 8 million over 2021. That's one positive effect from just the increased ARR, for example. You can relate the growth in ARR to those increased prepaid licenses in the balance. Another effect is also, as I mentioned, the lower customer receivables. We had a very large volume of business with this co-development customer. That's decreased and now gone at the end of the year. That also, in the cash flow calculations, this has actually a positive effect that we don't have receivables in our balance. Looking forward, the positive cash flow effects from growing software sales, that's an effect that will maintain.
Although we do expect to continue invest in our software, in the product, we will also have a balancing positive effect from growing software sales. Cash flow will look
Better than the reported EBIT, also for the coming few years. We maintain our financial target to be cash flow positive in 2024, as I mentioned. We do expect that we will have the IPO capital funding us through 2024. That's the plan that we have and that we're maintaining also right now. No change is expected at least in the one-year timeframe.
Thank you, Jonas. That was clear. Over to you, Magnus, and three final questions from Stefan Wård, Pareto Securities, and we're going back to the top line. How big is the sales force, and can you elaborate a little bit on the sales force?
I can absolutely. To explain a little bit the structure, how our sales force is built up, we have sales reps that are supported by customer success engineers, typically a couple, one or two per sales rep. We have, in addition to that, specialist engineers that are specialists in the industry applications that represents our customers that are also supporting. This is like a team, and we have a number of such teams to cover North America, Europe, and Asia. We are growing those teams to support the volume growth of our business. We continue to continually adding capacity to match the targets.
We could say that, reported, I believe, in the last quarterly presentation, is also that we are expanding with the sales capacity in the U.S. That has been completed in the Q4 , and we're also ongoing to add more customer success engineers. That's a very important function in the sales work. We have open positions there looking for the right fit candidates, for example, in Japan.
Mm-hmm. Thank you, Magnus. We continue on the top line. Another question from Stefan Wård, Pareto Securities. It is, have you succeeded in selling Impact to be used in additional use cases, like several use cases with current customers?
Good question. Short answer is, yes. The longer answer, again, I know, for example, within automotive, we have long-term customers where we have introduced Modelon Impact for new use cases besides those they are already working on with our previous solutions. Absolutely, yes. You could also say that in particular for the larger enterprises, as you grow from one department, typically you enter at one department that has certain workflows they want to just work with simulation. As you expand to the neighboring department, you are already addressing different workflows and different use cases and different needs.
This is a little bit how this game of expand plays out. In most of the cases where we're doing expand, it also means adding more use cases to the customer side.
Thank you, Magnus. A final question from Stefan Wård, Pareto Securities. Can you describe the technology cooperation and link to Lund University and also for recruitment of developers? Where are you searching for new team members? Are you able to attract the developers you want to from the channels you are searching in?
Great questions. Two pretty fairly distinct questions. Yes, I mean, we are, you could say, an offspring from Lund University. The simulation technology we work with has its origin at the Lund University. Actually, the technology that was invented in research at Lund University in the 1970s is the one that has become a global world standard. It's used across all over the world. This is the reason you could say that we have taken a leading position. The founders of Modelon were exposed to this when we were researchers at the university, and we brought this out into industry, and that's why we have a leading position with this.
Very strong links to Lund University. In our first, at least, maybe mostly in our first 10 years, we had very active collaboration also with several departments at the university, where we took research results and productified, industrialized, and offered to the market. In the past years, say the last five years or so, we're still maintaining such collaboration, but we're also working with universities at a global scale now in the U.S., for example, and in India, Germany. That takes us to maybe to the next question for the recruitment of developers or engineers, where are we searching? We're actually searching at a global level now.
We have sites at all our sites, basically. There are very good universities and academic institutions where we are establishing relations to connect with the new talents, great talents. It is a major source of recruiting, say, specialist type of engineers. For the software developers recruitments, it's we have a huge benefit of our global presence there. We all know, I believe that it's difficult to find certain type of skills. It's still challenging with certain profiles that are in high demand, but that we have sites across the world where it makes it at least easier for us to find talent and including in our teams that often are distributed globally, working remotely.
Yes, we are able to attract developers. There are sometimes positions that are more challenging to fill, and it may sometimes take a bit longer, but we usually find a way to handle that. I should also say that we are very, very pleased with the talent that we attract. It's really excellent people, extremely skilled, talented, that brings a lot of value into our company.
Thank you, Magnus. We have a final question coming in from Johan Stenvall, and this one is for you, Magnus. What can you offer that your competitors cannot? Is the 4x outpace of the overall market growth expected to stay at these levels going forward? If not, what is a reasonable number versus underlying market?
The targets that we have set out for 2024, the growth targets we have set out, they do represent that order of magnitude for 4x the market growth size. Yes, we do expect to continue to deliver on that. I should also say there that this is the growth of the simulation analysis market in total. The area where we are working, systems modeling and simulation, there are no specific numbers for that segment alone, but I'm pretty sure that the growth rate of that is also higher than those close to 8% for the total. That might be a factor also. We're absolutely comfortable with maintaining that pace.
Mm-hmm.
That was the second part. You have to repeat the first part. I forgot. Sorry.
What can you offer that your competitors cannot?
Yes. We can offer several things. I mean, first, foremost, I would say that we are the only, at least currently, cloud-native dedicated systems modeling and simulation platform, cloud-based. Of course, this position is so attractive that I would be very surprised if we were the only ones on the market in this segment, in say two years or so. I mean, we are evolving quickly, so we will fight to keep our pioneering and leading position in this space. Right now, we are unique in that sense. I should also say that we are unique in how strongly we are dedicated, committed, and work with open standards in modeling and simulation.
This is very important, as the use of modeling and simulation goes beyond the sort of specialist communities in the companies and start to be used by many engineers. It's extremely important to be able to share information in standardized formats. Many of our competitors are basing their solutions on proprietary formats, which just makes these type of sort of sharing and connectivity across different platforms as well, much more difficult or even impossible. There is an increased interest and need to use simulation software that are open standards based. We have been doing that for 15 years.
Some of our competitors are sort of starting to convert or with half-hearted adopt these open standards, but we are fully into that. The third thing I should mention also is that there are basically two parts of a systems modeling and simulation solution. It is what you could call the compute engine that performs the actual simulations. There is the part where you build the models of your products. We have a very strong set of pre-built model components that can be used by our customers. It's almost like LEGO bricks. We provide a huge box of LEGO bricks which the customers can use and build their particular system in a very convenient and streamlined way.
I don't know any competitor we have that can offer the same number of components or that volume of pre-built modeling support off-the-shelf.
Thank you, Magnus. It's time to wrap up this presentation. I hand over to you, Magnus, for some final thoughts.
Thank you. This is just the concluding slide with some summary bullets. Q4, we are again very pleased to see how our ARR growth is taking off in 2021, and that we are settling at a rate of 8% quarter to quarter, three quarters in a row, corresponding to a 36% annual pace. This is definitely the main highlight. We are full of confidence as we move into 2022. We see good activity in our pipeline in the industries we address. Again, very happy to see that we have a lot of our leads and prospects are in the clean energy sustainability applications. We are executing on our plan.
We are transforming from our original mix of service and software into a business that is dominated by recurring revenue from our cloud platform, Modelon Impact. Yeah. I want to thank you for listening in, and we have the Q1 report coming up on May 17. I hope to meet you all again at that time. Thank you.