This article first appeared on GuruFocus .
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Annual Recurring Revenue (ARR):Grew by $5.2 million in Q2, reaching $140 million, a year-over-year increase of 18%.
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Secure and Custom ARR:Added $4.9 million in new ARR, growing 27% year-over-year to $64 million, now representing 46% of the total ARR base.
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Connected Spaces ARR:Increased by $0.3 million in the quarter, with an 11% year-over-year growth.
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EBITDA:Reported at $7.2 million for Q2, a 30% year-over-year increase. Trailing 12-month EBITDA reached $40 million, a 60% improvement, with a 31% EBITDA margin.
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Free Cash Flow:Q2 free cash flow was $8.1 million, up from $3 million in Q2 of last year. Trailing 12-month free cash flow was $38 million.
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Recognized Revenue:Grew 18% year-over-year, in line with ARR growth.
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Operating Expenses:Cash-based salary expenses increased by $1.3 million, share-based expenses were flat at $1.8 million, and other OpEx was $4.2 million.
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Profit Before Tax:Increased by $1.3 million to $6.9 million for the quarter.
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Cash Position:Exited Q2 with $45 million in cash and money market positions, after returning $44 million to shareholders via dividends.
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Q3 ARR Outlook:Expected to be in the range of $142 million to $145 million.
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Release Date: August 13, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Pexip Holding ASA ( PXPHF ) reported strong ARR growth of 18% year-over-year, reaching $140 million, with Secure and Custom growing 27%.
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EBITDA improved significantly, with a 12-month rolling EBITDA of $40 million, a 60% increase year-over-year, and a margin of 31%.
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The company achieved a Rule of 40 performance of 49%, well above its long-term target of 40%.
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Defense and national security segment is a key growth driver, now representing 15% of total ARR, with major wins including a European Ministry of Defense contract for over 100,000 users.
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Free cash flow for the last 12 months reached $38 million, up from $3 million in Q2 of the prior year, demonstrating strong cash generation.
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The launch of Pexip Connect for MTRs on Android is now publicly available, with first orders booked, expanding the Connected Spaces product portfolio.
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Net retention in Secure and Custom was strong, with existing customers contributing $4 million in net upsell, the best ever in dollar terms for the segment.
Negative Points
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Connected Spaces growth was modest, with only $0.3 million in new ARR, and new sales were below usual levels as large deals were concentrated in Secure and Custom.
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The company's Q3 ARR guidance of $142-145 million implies a slowdown in growth compared to recent quarters, which may concern investors.
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Operating expenses increased, partly due to higher AI-related costs and salary increases, with no immediate significant productivity gains from AI yet.
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The company noted that Q4 2025 had extraordinary large contracts, and they do not expect to repeat such a high growth quarter in Q4 2026.
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The dividend payment of $44 million reduced cash reserves, leaving a cash position of $45 million, which may limit future investment flexibility.
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The company's revenue recognition is becoming more front-loaded due to software sales, which could lead to volatility in quarterly revenue.
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The company's cost of goods sold was unusually low in the prior year, making the incremental revenue-to-bottom-line conversion of 34% appear less impressive.
Q & A Highlights
Q: Can you expand on the development expected for ARR in the third quarter, given the strong DAR over the last couple of quarters and the guidance for a slowdown back to levels seen more than a year ago? A: Trond Johannessen (CEO) explained that the guidance is meant to provide the best possible picture of the current quarter, and the positive trends from previous quarters are expected to continue. He noted that the difficulty lies in judging which quarter specific deals will close in, and cautioned against overinterpreting the numbers. Asmund Fodstad (CRO) added that momentum remains strong and the second half of 2026 looks strong, with the trend expected to continue at the same or accelerated rate.
Q: How do you see the mix between new customers and upsell in Secure and Custom for the second half of the year? A: Oystein Hem (CFO) stated that customers typically start with a relatively large deployment of a couple hundred thousand dollars and then expand materially as they ramp into full production. This dynamic is expected to continue, with net retention and net upsell potentially being the biggest contributor to net growth. Trond Johannessen (CEO) added that large customers rarely come in with $1 million ARR from zero; they start smaller and grow, which is then classified as upsell rather than new sales.
Q: What are you seeing in the underlying development of the Connected Spaces market, and do you expect the launch of Pexip Connect for MTRs on Android to drive an acceleration in growth? A: Oystein Hem (CFO) said the quarter's performance in Connected Spaces was consistent with previous quarters, with modest growth quarter-on-quarter, except for the standout Q4. He noted it's too early to say what impact the new Android product will have, as it's still in proof of concept and early customer discussions, with not enough orders yet to have a clear perspective on adoption speed.
Q: How do you look at future OpEx growth over the next couple of years, given you're significantly above your Rule of 40 target? A: Trond Johannessen (CEO) stated they are continuing to invest in people, particularly on the commercial side, given traction in Secure and Custom and success in defense. However, savings from AI and productivity improvements in other areas are balancing this out. He reiterated the ambition to approach around 300 employees by year-end, but doesn't foresee dramatic changes to the OpEx base or investment levels.
Q: How much are you using AI, and are you at a stage where you're seeing significant token consumption without yet being able to take out efficiencies? A: Oystein Hem (CFO) said he's comfortable with current AI costs, which are a relevant cost item and part of the increase in other OpEx. He noted it's too soon to say they have meaningful productivity gains to significantly reduce staff, but AI is an enabler allowing them to do more with the same number of people, consistently adding more ARR each quarter.
Q: Can you talk about the development of the 57% of revenue coming from self-hosted and sovereign cloud, especially the 11% from Connected Spaces, and how you see it moving forward? A: Trond Johannessen (CEO) explained that many use cases reported as Connected Spaces ARR are linked to self-hosted and sovereign clouds, making them comparable to Secure and Custom. He said they don't plan to introduce this as a new reporting segment, but it illustrates that the majority of Pexip's business is linked to security and data control. The total number is expected to increase, though whether the 11% share increases or just the ARR number is hard to say.
Q: Should we expect more front-end loaded revenues going forward, given the revenue recognition over the past couple of quarters seems more front-loaded with software sales? A: Oystein Hem (CFO) confirmed that's a fair expectation, as most of the growth is in Secure and Custom, which is mostly on software. He expects that share to grow slightly, and as a consequence, revenues will be a bit more front-end loaded.
Q: Do you think the second half of 2026 will be comparable to the second half of 2025, which saw substantial growth on large contracts in Q4? A: Oystein Hem (CFO) clarified that they are referring to general trends, excluding the extraordinary large contracts from Q4. He expects the second half to be good, but wouldn't necessarily put into the baseline that they will deliver another $8 million plus quarter in Q4.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
