Pexip keeps delivering strong quarters. Growth is picking up, defense deals are expanding, and cash margins remain very high. Yet while fundamental execution has consistently stepped up since my initiation on Pexip and my Q1 2026 update, the stock price has stayed largely stuck in the NOK 70–80 range. As steady operational compounding compresses valuation multiples on a forward basis, the big question is simple. Is Pexip finally getting close to an entry point that clears our 20% CAGR hurdle rate?
Let’s look at where we stand after Q2 2026.
In short, the company delivered another very solid performance, confirming that the momentum built over recent quarters remains fully intact.
Annual Recurring Revenue (ARR) expanded to $140.2 million, representing an 18% year-on-year increase and reaching the upper end of management’s guidance range of $137–$141 million. Blended Net Revenue Retention (NRR) rose to 102%, driven by strong net upsell across enterprise and government accounts.
Top-line growth continues to convert efficiently into cash, with Last Twelve Months (LTM) Adjusted EBITDA reaching $40.4 million (a 31% margin) and pushing the company’s LTM Rule of 40 score to 49%.
Looking at the stock price chart, Pexip moved up strongly from its NOK 55 lows late last year, passing NOK 80 in May and peaking near NOK 85 in July. Since then, the stock has pulled back about 12% to around NOK 75, even though the company just reported its strongest operational quarter yet.
This means the stock is getting cheaper on a forward basis. While we are already getting close, any broader market pullback that pushes the price down into the high NOK 60s would offer a great setup. At those levels, as you will see, we should be clearing Fjord Alpha’s 20+% CAGR hurdle rate.
Segment Deconstruction: Twin Engines
Pexip’s commercial progress is best understood by looking at its two distinct product areas. Rather than analyzing product features and market catalysts separately, we can look at how specific industry trends feed directly into each segment.
1. Secure & Custom Spaces (The Growth Engine)
Financial Performance: Segment ARR reached $64.2 million at the end of Q2 2026, up 27% year-on-year and adding $4.9 million sequentially from Q1. Secure & Custom now accounts for 46% of total group ARR, compared to 42% a year ago. Net Revenue Retention (NRR) reached 106% for the quarter, supported by $4.0 million in net upsell and $1.5 million in new client additions, offsetting $0.6 million in churn.
Sovereign IT & Defense Demand: Public sector agencies across Europe are increasingly turning away from multi-tenant public cloud services for sensitive communications. Pexip’s self-hosted software runs on-premises, in sovereign cloud environments, or inside completely secure perimeters where public internet connectivity is prohibited. Defense and national security clients now represent 15% of group ARR, more than doubling from 7% in Q2 2025. Management also noted rising demand for tactical field deployments, where video hardware must operate reliably in environments with limited or unstable connectivity.
Key commercial wins:
European Ministry of Defense: Public tender win covering 100,000 users for secure video meeting and integrated chat capabilities.
European Federal Police Force & Ministry of Finance: Selected Pexip’s self-hosted software to secure operational government communications.
European Financial Services Firm: Displaced an incumbent global public cloud vendor to comply with strict internal data governance rules.
Private AI catalyst: In regulated sectors like healthcare, justice, and finance, organizations want to use AI tools for real-time translation and automated meeting summaries. However, streaming confidential audio to public cloud AI servers often violates regulatory compliance policies. Pexip allows clients to process AI workloads locally within their own security boundary, keeping sensitive data protected while enabling modern automation.
2. Connected Spaces (The Utility & Cash Engine)
Financial Performance: Segment ARR closed at $76.1 million, up 11% year-on-year and adding $0.3 million quarter-on-quarter. Quarterly NRR rose to 99%. This is the best retention score the segment has seen in three years. New sales ($1.2M) and net upsell ($0.9M) comfortably covered quarterly churn ($1.8M). Connected Spaces acts as a predictable utility, generating high-margin cash flow that funds group R&D and capital returns, including the $44 million dividend paid YTD.
MTR on Android Launch: In June 2026, Pexip launched Pexip Connect for Microsoft Teams Rooms on Android in close collaboration with Microsoft. This feature allows meeting room devices to connect directly to third-party services (such as Zoom, Google Meet, or Webex) right from the Microsoft Teams Room interface.
Opening a 1.5 Million Room Market: This expansion significantly widens Pexip’s reach across Microsoft’s global installed base of roughly 1.5 million meeting rooms. While Pexip previously supported Windows-based Teams Rooms, bringing native SIP interoperability to popular Android-based video bars (from vendors like Poly, HP, Neat, and Logitech) lets enterprise customers manage multi-platform meetings without buying extra hardware compute boxes.
Profitability, Margins, and Cash Flow Generation
What stands out most with Pexip is how easily extra revenue turns into profit. Because their cost base is mostly fixed, new sales drop straight to the bottom line. Adjusted EBITDA came in at $7.2 million for the quarter (a 22% margin), which pushes EBITDA over the last twelve months to $40.4 million, a 31% margin. Gross margins stayed very high at 90%.
Crucially, these are not just paper profits. Free cash flow reached $8.1 million for the quarter and $37.9 million over the last twelve months (+44% year-on-year). Because the core software is already built, growth requires limited reinvestment. Capitalized R&D was just $1.0 million in Q2, showing that Pexip can expand without spending heavily on new hardware or infrastructure.
The balance sheet is clean, with no debt. Cash and money market funds dropped from $81.0 million in Q1 to $44.8 million in Q2, but that is actually a positive sign for shareholders. The drop was caused by a $44 million dividend payout (NOK 4.00 per share) in April. It is good to see management hand excess cash back to owners rather than sitting on it or making risky acquisitions.
Base, Bull and Bear Case update
Following my Q1 2026 review, I upgraded my assumptions to reflect a stronger growth engine in Secure & Custom Spaces and a far healthier cash cow in Connected Spaces than expected. Pexip’s Q2 2026 report confirms that Q1 was no anomaly.
Once again, I see a need to up-adjust my assumptions given very strong operational performance across both product engines.
Base Case: Moving up again
Our previous Base Case assumed Pexip would settle into a 14–16% growth profile with EBITDA margins around 28–30%. After Q2, those assumptions again look slightly too conservative:
Blended ARR growth accelerated further to 18% year-over-year ($140.2 million total ARR).
Secure & Custom grew 27% year-over-year to $64.2 million, now representing 46% of total company ARR.
Connected Spaces delivered 11% year-over-year growth with a 3-year high quarterly Net Revenue Retention (NRR) of 99%.
LTM Adjusted EBITDA margin expanded to 31% ($40.4 million), pushing Pexip’s Rule of 40 score up to 49%.
What to assume now: I bump the 5-year Base Case revenue CAGR from 15% up to 16% and anchor our terminal EBITDA margin at 31%.
Bull Case: High-teens to 20% growth profile
My previous Bull Case required blended growth moving toward 17–19% with EBITDA margins holding around 30%+. Q2 demonstrates that this profile is increasingly becoming the operational baseline:
Secure & Custom is scaling rapidly into a dominant sovereign IT engine, with defense accounts doubling to 15% of group ARR.
Connected Spaces continues to stabilize rather than drag down group performance, aided by the June commercial launch of Pexip Connect for Microsoft Teams Rooms on Android.
Operating leverage is compounding cleanly, with LTM free cash flow reaching $37.9 million (+44% YoY).
What to assume now: I adjust the Bull Case revenue CAGR from 18% to 20% and raise our terminal EBITDA margin assumption by 2 percentage points to 37%. In short, the upside case is that Pexip sustains 20% ARR growth while converting over a third of revenue into EBITDA.
Bear Case: Further softened
The original Bear Case was built around Connected Spaces becoming a “melting ice cube” that would pull overall growth below 10%. Q2 results further weaken that thesis:
Connected Spaces churn has stabilized (99% NRR), with new sales and upsells exceeding quarterly cancellations.
Secure & Custom now represents nearly half of total ARR (46%), giving the higher-growth segment greater influence over group-level trajectory.
What to assume now: I raise my Bear Case revenue CAGR from 8% to 10% and lift the EBITDA margin floor from 23% to 25%.
Updated valuation - Closing in on buy territory
While business fundamentals continue to improve quarter after quarter, the stock price has remained largely range-bound in the NOK 70–80 corridor. This divergence between operational progress and price action is creating an increasingly interesting setup. As earnings and recurring cash flows grow into the current valuation, the stock is naturally becoming cheaper on a forward basis, steadily compressing multiples.
For the model, I now assume:
Base Case: 16% ARR growth, 31% EBITDA margin. EV/ARR remain at 6.0x.
Bull Case: 20% ARR growth, 37% EBITDA margin. EV/ARR increase to 7.0x.
Bear Case: 10% ARR growth, 25% EBITDA margin. EV/ARR compress to 4.0x. This is an increase from 3.0x, motivated by impressive underlying fundamentals.
Under my updated 5-year Base Case assumptions, the expected return setup at 18% CAGR is closing in on our 20% annual hurdle rate, but it hasn’t quite crossed the threshold just yet.
Pexip is getting very close to a great entry point. We don’t need a dramatic sell-off. A price dip into the high 60s range would make complete sense as an entry point, providing enough margin of safety to comfortably clear our 20% hurdle rate. Even without a dip, another quarter or two of steady fundamental compounding will open up a clear window to step in.
For now, Pexip sits right at the top of my watchlist.
Thanks for the update.
My thoughts on this:
Your growth assumption is quite optimistic as it implies (in the base case) a 25%+ growth in Secure & Customs (assuming low growth in Connected spaces ~5%) over a 5-year period. On the other hand, I believe that the EBITDA margin assumption is too pessimistic. Under the assumption that GP margin will stay around 90% and operating expenses will increase relatively slowly (5% or so), EBITDA margin can reach > 40% "easily".
However, with a more conservative EV/EBITDA multiple of 15 I land in the same ~18% 5y CAGR range for the stock price.