Pexip Holding ASA

OSE:PEXIP

Earnings Call Analysis

Pexip achieves strong growth with positive outlook for 2024.

Pexip's third quarter results indicate strong growth with annual recurring revenue (ARR) reaching $109.5 million, a $2.4 million increase, and a year-over-year growth rate of 10%. EBITDA margin stands at 17%, with guidance suggesting an expected ARR between $111 million and $114 million for Q4. Their Connected Spaces segment contributed significantly, achieving $66.8 million ARR with 11% growth year-over-year. The introduction of new products like Connect for Zoom Rooms is driving this momentum. The company aims for sustained growth of over 10% in ARR and maintaining an EBITDA margin above 20% in 2025.

Sustained Revenue Growth Reflects Market Strength

Pexip has reported a strong performance in Q3, with revenues reaching NOK 228 million, marking a 6% increase compared to the previous year. This growth is primarily driven by the Software-as-a-Service (SaaS) segment, which saw an impressive 22% increase. However, the traditional software revenue experienced a decline of 13%, likely due to a strategic shift in the company's revenue mix towards as-a-service offerings. On a 12-month basis, the company's revenues have grown by 11%, aligning with the overall annual recurring revenue (ARR) growth, which is a crucial indicator of future revenue consistency.

Significant Improvements in Profit Margins

The gross margin increased by NOK 15 million, contributing to an EBITDA of NOK 18.1 million in Q3. This was further strengthened by a year-to-date EBITDA of NOK 178 million, which translates to a 17% EBITDA margin. The company aims to achieve an ambitious target of 20% or higher EBITDA margin by 2025, showcasing Pexip’s proactive approach to enhancing profitability while managing cost controls effectively.

Annual Recurring Revenue Growth Shows Promising Trajectory

Pexip's ARR grew by USD 2.4 million to reach USD 109.5 million, reflecting a solid 10% year-over-year increase. This is encouraging as it aligns with the company's growth targets for the upcoming years. Moreover, both Connected Spaces and Secure and Custom sectors displayed notable growth, indicating a balanced performance across Pexip’s service offerings.

Effective Cost Management Amid Market Challenges

Despite rising inflation impacting operational expenses, Pexip managed to keep costs stable year-over-year. The slight decrease in fixed salary costs was balanced by higher variable salaries linked to performance targets, demonstrating a strategic alignment with productivity and revenue targets. Operating costs were managed effectively, helping maintain a healthy cash flow increase of NOK 18 million compared to Q3 of last year, resulting in free cash flow of NOK 8 million for the quarter.

Outlook and Guidance for Future Growth

Looking ahead, Pexip is optimistic about its market trajectory. The management estimates that the company will end the year with an ARR of between USD 111 million and USD 114 million. For 2024, the EBITDA margin guidance has been refined to 17% to 20%, maintaining its commitment to achieving over 10% ARR growth and over 20% EBITDA margin in 2025 and beyond. This forecasts steady growth and profitability against the backdrop of growing demand for secure and customizable video conferencing solutions.

Strategic Partnerships Fuel Expansion

Pexip's strategic collaborations, particularly with well-established industry players like Microsoft, Zoom, and RingCentral, are poised to boost growth prospects significantly. Notably, the launch of Connect for Zoom Rooms has been met with positive initial feedback, and Pexip anticipates this product will contribute substantially to ARR growth in the coming quarters.

Insights into Pexip's Customer Base and Market Position

The performance metrics also indicate a diverse customer base, with significant contracts secured from both small and large organizations, including notable names from the Fortune 500. As Pexip continues to penetrate the federal and public sectors, including a notable uptake with their FedRAMP service, there is potential for continued growth in secure video communication, underpinning the firm's market position as an industry leader.

Cash Position and Strategic Future Planning

Pexip's balance sheet remains robust with a cash position close to NOK 600 million. The management has indicated an ongoing assessment regarding this cash reserve, which could lead to future shareholder returns or growth investments. Their cash distribution policy aims to allocate 50% to 100% of annual free cash flow, which reinforces a commitment to balanced capital allocation strategies going forward.

Earnings Call Transcript 2024-Q3

[Trond Johannessen, executive]

Good morning, and welcome to this presentation of Pexip's third quarter results. My name is Trond Johannessen, and I'm the CEO. Together with me here at Lysaker today, I have Oystein Hem, our CFO; and Asmund Fodstad, our Chief Revenue Officer. Together, we will take you through the highlights of the past quarter and what we are focusing on going forward.

The standard disclaimers apply as usual.

Before going into the details of the third quarter, let me give you an overview of what Pexip is about. We were founded in 2011 and currently, we operate with 286 employees located in 25 countries across the globe.

We are a specialist video conferencing player focusing on interoperability and secure and custom spaces. We do software only delivered as a software or as-a-service. Pexip has unique and established partnerships with the leading companies in our industry. We complement and enhance their solutions and do not generally compete with them. Our customers are mainly large organizations, both in the public sector and private sector, that have complex needs when it comes to video collaboration.

Now to the highlights of the quarter. Our annual recurring revenues grew with USD 2.4 million during the quarter, and leaves us with an ARR base of $109.5 million leaving Q3. Both business areas have double-digit growth year-over-year, and contributed well in the quarter. EBITDA came in at NOK 18.1 million in the quarter.

This includes a few notable items around share, option, costs, and revenue mix, that has impacted EBITDA negatively, with around NOK 15 million in the quarter. Adjusted for this, we are at NOK 33 million in EBITDA.

Cash flow ended at NOK 7.8 million in the quarter, an improvement of NOK 18 million compared to Q3 last year. Our newly launched product in Connected Spaces, Connect for Zoom Rooms, is off to a very good start in the market, and we have also officially launched our partnership with RingCentral in Q3, enabling RingCentral Rooms to join Teams meetings with excellent quality.

If we look at our Q3 performance in the context of the last 12 months, we see that the positive trend we have seen in the last quarters continues. Our ARR has grown 10% since the end of Q3 last year, and is at an all-time high. The underlying ARR has grown 12%. Our 12-month rolling EBITDA reached NOK 178 million, which corresponds to a 17% EBITDA margin.

And finally, our free cash flow, the last 12 months was NOK 209 million, NOK 840 million improvement since Q3 last year. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position.

Let's talk some more about that. Pexip's mission is to make seamless video communication available to all organizations, regardless of technology platforms and security requirements. We have 2 main solution areas: Pexip Connected Spaces; and Pexip Secure and Custom Spaces.

Let me say a few words about the market in both these areas. First, Connected Spaces. Our goal at Pexip is to make sure that when people use meeting rooms, they don't have to think about what kind of equipment is in the room or what type of video meeting they are joining. We want everything to work just seamlessly, and we call this any room to any meeting.

To make this happen, we work closely with the other industry players to create solid, reliable, and certified solutions. We continue to make good progress on this, and just this week, Microsoft launched their One-Touch Join support for Microsoft Teams Rooms when using Pexip, making it a lot easier for customers to join Zoom and other meeting platforms when using their MTRs with a high quality experience. RingCentral Rooms are now also enabled to join Teams meetings.

Pexip has a strong market position in an attractive and growing Connected Spaces market. Let me elaborate. The total available market for software solutions used in video room systems is around USD 3 billion, with an annual growth rate of around 15%.

Pexip has a unique offering in the market with a superior user experience, coverage of all relevant use cases, and the flexibility and hosting that only Pexip provides. Our established industry partnerships form the basis for the strong market position and new opportunities continuously emerge from these close relationships.

Continuing a bit on the partnership topic. Our recent recognition as Independent Software Vendor of the Year and Azure Marketplace Global Partner Finalist, are tangible signs of how we are appreciated by Microsoft as a key partner.

Now, let me move over to our second business area, Secure and Custom solutions. In the secure meetings area, we continue to see that the concept of having more than one video meeting platform is increasingly gaining momentum in the market. The awareness around how different meetings may require different solutions is growing.

As a consequence of this, organizations are looking to complement their primary cloud-based video meeting platform with a secure meeting solution that has tailored user authentication, clear meeting classification, labeling, and where complete control over data is achieved.

Pexip private AI for secure meetings is available for purchase now in November. This solution is developed as a response to requests from very security conscious organizations that would like to use AI tools, but with complete control over where the data goes. The solution is built on NVIDIA AI models and can be hosted in the private deployment with complete data control. Neither Pexip nor NVIDIA will have any access to any data.

In addition, the solution allows for customer specific language libraries for more accurate results. The first use case is around captioning or speech-to-text and translated speech-to-text. Next up is speech-to-speech translation.

With that, let me leave it to Asmund to give us a sales update.

[Åsmund Fodstad, executive]

Thank you, Trond. Good morning, everyone. Let's look at the sales updates. Happy to announce another fantastic quarter with great wins for Pexip in Q3. For Connected Spaces, we delivered a USD 1.5 million ARR growth to USD 66.8 million, that is an 11% growth year-over-year.

Pexip enjoy continued growth in this space because of these main reasons. Number one, Pexip have a unique technology and are being recognized as the leader in this space with far better user experience than any competitor. We see a strong uptake with our FedRAMP solution, which is a sovereign cloud in the U.S. for federal and public sector, but also started to see traction from large enterprises working within the defense industry and the public sector who wants the same experience and security.

And lastly, the strategic partnerships, especially with Microsoft, HP, Poly, and now also with Zoom, where we win Fortune 500 logos together. Let's have a closer look at one of the Q3 wins within Connected Spaces.

HSBC is another Fortune 500 customer into the Pexip family. This is a flagship customer for Zoom and for Microsoft, and the fact that the 3 of us are cooperating for setting the new standard for [ in-drop ] is exciting and a huge improvement for these users of video meetings.

So how does actually Pexip win such a logo? These customers have multiple video meetings across different technologies, and especially Zoom Rooms to Microsoft Teams meetings. Pexip's technology resolves all those use cases for the customers in an elegant way.

Pexip is significantly improving the user experience for their employees, both with how you join the meeting, but it also enhances the meeting experience in itself. It basically gives them a better return on their [ Zoom ] investment as the Pexip solution always works across any technology, and in fact, for HSBC, reducing the support load for IT was a strong additional argument to deploy Pexip.

For the use case for HSBC, is a very familiar case for many of the large enterprises. Pexip are, of course, excited about the HSBC win in itself, as well as the fast growing pipeline we have seen for Connect for Zoom Rooms.

Going forward, the new product Connect for Microsoft Teams Rooms that was released this week, expands further over offering in Connected Spaces and makes Pexip expect continued growth in this space.

Let's now have a look at the Secure and Custom. We are reporting another strong quarter for Pexip in Secure and Custom, with a USD 1.3 million ARR growth to USD 41 million. It's a 15% growth year-over-year. Main reasons for our continued growth in this space is, number one, the need for secure video meetings, where Pexip's technology is second to none. That continues to be the main growth driver.

Second, the Pexip technology give any organization the full flexibility of their definition of secure, as well as their preferred deployment methods, on-premise, air-gapped or self-hosted, while maintaining full control of their data. Pexip is the only one offering this flexibility in secure spaces.

And lastly, we see increased usage and upsell within our install base, as well as sales to new secure environments, like the first virtual court sale outside of Europe.

Let's also have a closer look at one of the Q3 wins for secure spaces.

Pexip won one of the largest naval defense forces in Europe. Naturally, I cannot name the customer itself. Why does Pexip win a customer like this, and what is their use case? Number one, Pexip has the leading technology for secure video meetings. Pexip offers advanced security features ensuring that the right person is in the right meeting at the right time.

And Pexip offers an attribute-based access control, so-called ABAC, allowing the customer to admit or deny participants based on authentication and privileges set via an external policy. This is extremely important in the defense segment.

And lastly, Pexip's unique integration capabilities increases the security of the video meeting in itself and ensures fast collaboration whilst maintaining the highest threshold of data security across multiple domains.

Pexip is proud to be chosen as a secure video meeting provider to these kind of customers and continue to see growth, both in the defense sector and, of course, in secure spaces going forward.

And with that, I will hand it over to Oystein for the financial update. Oystein?

[Øystein Hem, executive]

Thank you, Asmund. Starting off with annual recurring revenues. We grew the ARR best with $2.4 million in Q3 and we closed the quarter at $109.5 million. With this, we are at 10% growth in ARR year-on-year, in line with our growth ambitions for 2025 and onwards.

In terms of products, this was a very strong quarter for Software-as-a-Service. As-a-service, ARR grew USD 3.3 million, while software ARR is down USD 0.8 million. In terms of geo distribution, all 3 regions had growth this quarter, with Americas and Europe contributing the most.

Separating the development in the 2 business areas, Connected Spaces and Legacy combined grew $1.2 million, with Connected Spaces increasing $1.5 million and Legacy decreasing with $0.3 million. The dynamics is similar to previous quarters, with growth coming from strong new sales, compensating for net retention below a 100%.

Secure and Custom grew $1.3 million, driven by new customers. On existing customers, several good upsells compensated for the churn on older accounts, leading to a net retention rate of a 100%.

Moving over to the P&L. Revenues continued to grow. And in Q3, they were NOK 228 million, up 6%. This is a combination of 22% growth on Software-as-a-Service and a reduction of 13% on software due to the shift in the ARR mix of the 2 products.

Gross margins increased with NOK 15 million and EBITDA increased with NOK 8 million. On a 12-month basis, revenues are up 11%, in line with the ARR growth, and we're now at 17% adjusted EBITDA margin, moving towards our 2025 ambition of 20% or higher margins.

There are 2 notable items that impacted Q3 EBITDA that are out of the [ order ]. One is an NOK 8 million increase in share option costs, resulting from increased employer tax accruals in the quarter. The share price increased almost NOK 10 in the quarter, and this increased the accrued gains in the company's share option [ program ]. The other is a reduction in software revenues, resulting from a shift in the mix between software and Software-as-a-Service. As around 80% of the revenues from a software contract is recognized at delivery, a shift towards as-a-service means that revenue and EBITDA benefit is delayed.

It's important to note that the underlying cash flow profile is the same on software and Software as-a-Service, and the vast majority of both areas is based on prepaid 1-year contracts. However, with Software-as-a-Service, the immediate benefit is a working capital improvement, while for software, you will see the impact on the P&L the quarter the contract is delivered.

In Q3, a key driver was good take-up of our FedRAMP service in the U.S., which has seen several existing software customers move towards Pexip Secure Government Cloud. Even with those 2 items, we continue to convert revenue growth into improved profits at a strong pace.

So far this year, we have increased revenues with NOK 78 million and gross profits with NOK 70 million. EBITDA is up NOK 64 million in the same period, which is 83% of the revenue growth. This continues to be the core of our financial strategy, aiming at 10% or higher revenue growth and combining this with good cost control to generate growth in earnings.

On operating costs, operational improvements has offset the impact of inflation, leading to a stable cost base compared to Q3 of last year. We have a slightly lower headcount than last year, leading to a reduction in fixed salary. However, we also have higher variable salary cost from higher target achievement compared to last year.

Both salary expenses and other OpEx are slightly down compared to last year, while share option costs are up.

Looking at cash flow, Q3 saw an improvement of NOK 18 million compared to Q3 of last year. And for Q3, Pexip had NOK 8 million in free cash flow in the quarter. The overall improvement is a result of higher profits. It's also worth noting that investment cash flow is NOK 8 million higher than in Q3 of last year. This is mainly due to delayed R&D tax credits from the Norwegian government. We expect those at the same level as last year and that NOK 5 million will come in during Q4.

To summarize the main points, revenues are up NOK 14 million or 6% and EBITDA, excluding other gains and losses, are up NOK 8 million. Depreciation is down NOK 8 million as historic investments have been fully depreciated. The positive NOK 13 million on net financials is from a combination of exchange gains as well as received interest on cash holdings. And the net result is a profit before tax of NOK 9 million, up NOK 34 million compared to last year.

And with that, I will give the word back to Trond for our outlook and targets.

[Trond Johannessen, executive]

Thank you, Oystein. We see a continued positive market outlook in both Connected Spaces and Secure and Custom Spaces. And we are confident that our place in the ecosystem and the current and new partnerships will continue to drive growth.

Looking into Q4, our best estimate is that we will end the year in the range of USD 111 million to USD 114 million in ARR. For EBITDA, we narrow the guiding range to 17% to 20% EBITDA margin for 2024. The 2025 and onwards targets of constantly delivering above 10% ARR growth and above 20% EBITDA margin remain in place.

And that concludes our presentation. Before going to Q&A, we will present our Q4 on February 13th next year, just make a note of that. And then I believe Q&A is up, Oystein?

[Øystein Hem, executive]

Yes, it is. We're happy to be joined by some of the analysts live on the stream. So we'll start off with questions from them before taking some that are received by e-mail. Kristian, are you on the call? If you are, we can't hear you. We have some technical difficulties, but our team is working on connecting the audio.

In case it is a question with Kristian, we'll move on to Jorgen from Pareto. Jorgen, are you on the call?

[Jørgen Weidemann, analyst]

So first, I'd like to say that it's great to see the initial feedback on Connect for Zoom Rooms being so positive. But could you provide a little bit of color on what sort of customers you have won? Are there a lot of small contracts or a few bigger ones?

[Åsmund Fodstad, executive]

Actually, it's a good combination, so which makes us even more positive about the pipeline. We've seen -- like the HSBCs that we just spoke about. So a couple of the larger ones and then a good chunk of medium-sized customers is what we like to call them. But the Zoom portfolio is full of everything from [ SMB ] to these large Fortune 500 [ good ] logos, so a good spread.

[Jørgen Weidemann, analyst]

Okay. And then I'd also like to highlight that you had a significant contribution from Connect for Zoom right now into the ARR base. But with ARR ending on expectations, that implies that are -- there are some older products that are not performing as well as at least we had expected. So could you please give some color on, [ a ], are there some underlying changes? Or should we just put this in the bucket of natural lumpy sales?

[Øystein Hem, executive]

If I can comment on that. I think I would attribute it partly down to sort of the lumpiness of sales, but also partly on the throughput capacity of our sales team. So obviously, working with the likes of HSBC and others. There's a quite substantial amount of effort from anything from security reviews to [ vetting ] to contract negotiations, which you can't have too many of in parallel. So I think it's partly that when you introduce something new, it takes some focus from the existing.

And then we hope, of course, to build more, call it, self-generating sales as our channels become more accustomed to this product and as we develop new channels to go-to-market with both Connect for Zoom Rooms and Connect for Microsoft Teams Rooms.

[Jørgen Weidemann, analyst]

Yes. Now, that makes sense. And finally, if I may ask one question. I would say, with a very strong contribution from Connect for Zoom Rooms, which are now contributing 30% of the growth in the quarter and also Microsoft solution coming in now for 60% of their users, what are you now thinking for the 2025 guidance? Because it's currently at above 10% growth, that's the pace you're at now, also considering the legacy drag, which should actually diminish next year?

[Trond Johannessen, executive]

We -- Above 10% is a pretty broad range. And I think we are not updating the guiding for '25 now. We're continuously considering the guiding, and we will make the updates when we think they should be done. But currently, the guiding for '25 remains in place.

[Øystein Hem, executive]

Let's move on to Oystein Lodgaard from ABG.

[Øystein Lodgaard, analyst]

I have a couple of questions. So first, congrats on the strong start for the new Connect for Zoom Rooms product. Can you say what is the potential for this kind of product long term compared to, say, what you see from Microsoft Teams Rooms? Do you have some flavor on that?

[Åsmund Fodstad, executive]

You want to start?

[Øystein Hem, executive]

So we -- of course, we don't know the full range of the installed base for Zoom Rooms. We know Zoom have gone publicly out and said that they have sold 2 million Zoom Room licenses. And so we know that there's a substantial amount of Zoom Rooms out there. So we've just scratched the surface in terms of the overall potential. And then I think we'll know much more in both 6 and 12 months in terms of how quickly can we penetrate this market.

[Øystein Lodgaard, analyst]

That's good to hear. And also one thing that I don't think was mentioned much now was the -- any -- can you share any update on the progress on the Poly partnership?

[Åsmund Fodstad, executive]

Yes. The Poly partnership continues to be a strong one with good results also in Q3. We have now close to 1.5 years since we signed the agreement with them back in May. And we believe that will continue into the next 12, 18, [ 24 ] months as we're kind of tapping into their installed base, but it's still a strong one and contributing good in the quarter.

[Øystein Lodgaard, analyst]

So as now that we move into 2025, it's roughly 1.5 years until the old Poly solution will be sunset. Should we then expect that the new ARR contribution from Poly starts to increase? Or how should we think about that?

[Åsmund Fodstad, executive]

Well, so far, we haven't guided on the partnerships individually on their contribution. But yes, of course, you have seen it with the results that they have contributed well, and I think we're just going to see that continue.

[Øystein Hem, executive]

Oliver Pisani from Carnegie. We'll move on to you.

[Oliver Schüler Pisani, analyst]

So first question is, I mean, you're cutting FTEs now Q-over-Q again, but you're also citing limited throughput capacity of the sales team. So what's your thinking about sort of FTE development going forward? And how lean can you get before this starts to hit your growth?

[Trond Johannessen, executive]

I don't -- I wouldn't put too much into the fact that the number of employees is varying a little bit quarter-over-quarter. There are some people leaving, some people starting, that may not be completely synchronized. So the sort of the resourcing is expected to be relatively flat.

We're, of course, looking at if we need to add capacity in some areas to cater for more work, for example, with new products on the sales side, could also be other areas that we're seeing that there is a need for less capacity. So we -- our current estimate is that it will be relatively stable going forward.

[Oliver Schüler Pisani, analyst]

All right. Good. Then just a technical question. What was the ARR from Secure Spaces if we exclude the Custom revenue?

[Øystein Hem, executive]

So, at least in terms of growth in Q3, the growth within Secure and Custom was almost completely on Secure Meetings. So we did see a relatively flat development on what we reported as video innovation quarter-on-quarter, which is pretty much in line with the previous quarters.

[Oliver Schüler Pisani, analyst]

Very good. And then, I mean, you still have a significant [ sort of ] excess cash position of almost [ NOK ] 600 million. So what's the strategic rationale behind sitting on that rather than paying it out?

[Trond Johannessen, executive]

We are constantly -- or the Board is constantly evaluating how to -- what to do with the cash. And I think that's something that we will come back to at a later stage, or that's basically the owners and the Board's decision to potentially decide on distributing or not distributing the cash. And there are, of course, various vehicles that could be used in this respect. But currently, that's up to the Board.

[Øystein Hem, executive]

And just to add to that, we have a cash distribution policy to distribute 50% to 100% of the free cash flow in the year, which we also did for 2024, where we distributed somewhat above 100% of the free cash flow. And so that cash distribution policy remains in place.

Let's try with Kristian Spetalen from Arctic once more.

[Kristian Spetalen, analyst]

So I was -- could you please go a bit -- speak a bit more into your Q4 guidance? My understanding was that the seasonality just in terms of normal sales was a bit stronger into Q4 than what's implied in your guidance. And also considering that it seems that the Zoom and Microsoft partnership will now come on top as well compared to kind of the growth year-to-date?

[Øystein Hem, executive]

So, to separate the 2 questions. So one, to take the last one first in terms of the Zoom and the Microsoft Teams Room contribution to our growth. Given that the capabilities now launched for Microsoft in November, we don't expect a lot of contribution from that product in Q4. But certainly, for 2025, we have solid hopes of that being a good growth driver for us.

In terms of the guidance range for next quarter, which is USD 111 million to USD 114 million, last year we did $3 million in additional ARR in Q4, and that would put us in the middle of the range for this quarter as well. So the other quarters have been stronger in 2024 than they were in 2023. But the overall seasonality in terms of a good Q4 remains within sort of our expectation.

[Kristian Spetalen, analyst]

Okay. And just remind me on when the Zoom partnership went live in the solution there?

[Øystein Hem, executive]

Product went live mid-Q2. So Q3 was the first full quarter that we've been in the business, [ correct ].

Thanks a lot, Kristian. We've also received some questions from investors on e-mail. Congrats on the HSBC win. Will you upgrade the guidance for 2025 if you see continued and increasing traction on Connect for Zoom and Connect for MTRs? And what type of penetration are you hoping for in 2 to 3 years?

[Trond Johannessen, executive]

And I think on the guiding, of course, I understand the questions are -- people are curious about how this will look going forward. We are, as I said, constantly evaluating the guiding, and we will try to sort of give you our best view every quarter.

Currently now, we were sitting in the middle of November, starting to look into next year, getting the pipelines in place and getting the forecasts from sales sort of where they need to be. So I think it's premature to do any changes to the guiding at this point. We will present the Q4 in -- on February 13th. So that will be the next time when we will potentially report on any sort of change or not change in guiding.

[Øystein Hem, executive]

Next question we've received is, can you give some information if you have plans of increased buybacks, dividends or M&A? The first 2 we've covered, but any update we can give on M&A?

[Trond Johannessen, executive]

I think as a small niche company, there will always be possibilities to expand a little bit on the markets we serve or the products we have through M&A. So evaluating whether we should partner, build or buy in all cases, so is, of course, something that we do.

Currently, I wouldn't put -- large M&A activities is not something that is high up on our list right now, but it's, of course, a possibility that we're looking into every time we are considering doing something new.

[Øystein Hem, executive]

Then we have received several questions, some which we have touched on, but one on -- can you help us understand how to think about OpEx going into 2025?

[Trond Johannessen, executive]

I think the current view is that we will keep it relatively stable. We expect that we will be able to do more with the resources we have. So we can sell more, develop more, create more value with the current resource base.

But of course, there comes to a point where we might need to add resource if the growth accelerates. But we -- but currently, the view is that we will keep this relatively stable.

[Øystein Hem, executive]

And if I was to add to that, I would say that in 2024, we've been able to basically have a nominally flat cost base by reducing somewhat on number of FTEs and which compensates for inflation. Going into next year, we would expect a more stable employee base, but then cost growth in line with inflation, give or take.

With that, that concludes our Q&A session. Thanks a lot for listening, and see you next quarter.

[Åsmund Fodstad, executive]

Thank you.