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Welcome to the conference call of TeamViewer AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. I now hand you over to Daniel Fatsad Yastani, who will lead you through this conference. Please go ahead, sir.

Thank you. Good morning. Welcome to the TeamViewer Q3 2021 results call. In a minute, Oliver, our CEO, and Stefan, our CFO, will take you through the business and the financial update and the highlights of the last quarter. And as always, you will have an opportunity to ask questions after the presentation. Given that we had the pre-release a bit less than a month ago, today's release should be relatively straightforward, but we nonetheless, of course, wanted to offer this call to you today. More importantly, and as a reminder, we will be hosting a virtual Capital Markets Day next week, Wednesday, on November 10 at 2 p.m. CET, to which you are all, of course, cordially invited. Information on the event and also the link to participate next week can be found on the IR section of our website. Before we start, and as a little housekeeping exercise for today, as always, please take note of the forward-looking statements that you find on page two of the presentation. And with that, let me now hand over to Oliver.

Thank you, Daniel. Good morning to all of you. Thank you for joining. Before we dive into Q3 and the nine-month data points, I'd like to quickly take a step back and look at 2021 more broadly. From our perspective at the moment, clearly everyone is much more focusing on the negative aspects of the business and the announcements of Q3. And clearly there have been some, no question. But there's also, from our perspective, very positive developments that we should not forget completely when we look at our business. And I think on the one side is the positive strategic positioning and the things that have gone well. And then, of course, we work on measures to improve the situation, the growth, which we will also present in more detail, as Daniel mentioned, and the capital markets day. But I think if we put that together, so on the one side, the ability to take measures, to act and refine and reconfigure initiatives, and on the other side, the strategic positioning and the positives in the business, then from our perspective, that's the basis for an overall quite optimistic outlook on TeamViewer. First point I'd like to make when we look at 2021, yes, we have been below our expectations in Billings growth, but we still believe it's a very healthy Billings growth. 19% in the first nine months of this year is still very good. And 48% adjusted EBITDA margin I think is also not too bad in a combination of the two. I think it's a very strong profile. Having said that, we will still reconfigure our initiatives. We will also look at our cost structure. We will make sure that we set the business up in the right way to reflect some of the more recent development. Thank you. We are also progressing very well in terms of delivering on our expansion into the enterprise space and our billings on a LTM basis are up by 75% in the first nine months this year and we are optimistic for a continuation of that journey going forward. I think if we could look back at IPO and where the enterprise business was at the time, I think this is a very strong progress and we believe there is room for further expansion and also increasing ACV in the enterprise business, very much supported by the megatrends in the market. We have now a much broader solution portfolio. We have very highly competitive products in place, especially in the augmented reality space and new use cases for enterprises, and I think we're very well positioned to unlock this potential there. Cash position, healthy. and we do generate strong cash flow, so I think that puts us in a good position, significant flexibility, which I think is also worth noting. Finally, and of course quite importantly, it's about restoring confidence very clearly, and we should prove to you that we are able to deliver the guidance that we have put out. As you can imagine, more than anyone else, we want to end the negative news flow around this. And we strongly believe that the reset guidance that we have given out provides the floor which is necessary to achieve this. So we feel good about this. As mentioned before, in one week's time, we will have a capital markets day. And that, I think, is a very good opportunity to really elaborate in detail on our strategy, the markets and the market growth, the product portfolio to explain it better, and also the initiatives that we've put in place in different parts of the business. So generally, not an easy year, but we remain very positive for the outlook. If we then go to Q3 specifically, so the disclosure for the last quarter, Daniel has mentioned it already. A good part of the REITs today has been published with preliminary numbers on October 6th. And on chart 5, you see a summary of many of them. And the largest part of them stayed unchanged versus the preliminary publication. One area in which the final numbers have come out significantly more positive is the growth of billings in the enterprise business. The number is now up 75% year-over-year. Originally, without the time to assess all the billings, we had assumed an already solid growth of around 60%. But now we are happy to see that the growth has accelerated versus prior quarter. As a reminder, in Q2, the LTM growth stood at 66%, so significantly up. What is important, I think, is subscriber growth and retention. So we've I'll put a full slide on this one. In line with what we have published a month ago, and I think fair to say initially when we came up with the numbers, many market participants have pointed out the relatively low number of net new subscribers in Q3. And as you can see on slide six, in prior quarters, we have added around 20K net new subscribers each quarter, and that was also the rough guideline that we have given when we were in discussions with investors. So now churn has been quite stable, has even slightly improved in the last quarter, which we were also expecting. However, if you look at the development of the new billings and put that in relation to the net new addition of 5,000s, It's showing that due to the transition to an even higher quality business we are making, and we constantly try to do with our product mix, the number of subscriber ads is really not the only metric anymore that is relevant. I think in the past, going back, the intake from free-to-paid measures was higher. and there were more discussions about it. Enterprise business was in its infancy. The whole notion of additional products, upsell, cross-sell, was only in its infancy, and therefore the subscriber additions was relatively more important than it is today. And clearly we're not satisfied with 5,000 net additions. That's also clear, and we want to improve that, so we're working on it. But it's also important, we think, to focus on the value per customer, that we are attracting, and the upselling and cross-selling that we're able to do. Again, one of the areas we will deep dive at the Capital Market Day because I think it shows the quality improvement of the business over the last years. So that's in the velocity part, and that's then also kind of continuing into the enterprise business, which we show on the next page. During the third quarter, number of enterprise customers now increased to 2,419. And again, reminder, enterprise customer for us definition is ACV above 10,000 euro, which of course is low, but we put it in place at the time of IPO to show that we're slowly progressing into higher ACV clusters. And 10,000 was the initial mark that we've given ourselves at the time. Now more than 2,400 of them, which is up 46%. And the enterprise billings from these customers expanded by 75% to 77.8 million over the LTM period. That's pretty remarkable from our perspective if you compare that times at the IPO. This also means that the average ACV per enterprise customers came up now more than 32,000 euro. And also the mix has improved significantly. Enterprise billings with an ACV of more than €200,000 are now 19% of our billings compared to 11% a year ago. And almost 50% of our enterprise customers generate billings of more than €50,000. One year ago, that cohort has only made up one-third. So you see that the number of enterprise customers is increasing. They spend more with us, so in all clusters we see an improvement, an upward movement, which is true for the entire business. Also in the smaller ticket velocity part, but then at the higher end of the velocity business, the SMB business, customers move above 10K into the enterprise, become more sticky, more cross-sell opportunities, and hence the very positive development of the enterprise business per se. As always, a few use cases, and that's certainly an area where we can talk more about in the C&D as well. First example, Rico, is arguably more traditional IT space. However, it already showcases really the breadth of our offering. It's not only including remote access and support for office devices, but it has moved also into augmented reality to remotely support and train on-site engineers, so in the OT world. And there's also remote training that takes place on the back of our product. So really broadening from originally IT support into other areas. And then we have a use case with Chimbali Group, through which coffee machines can be serviced from remote. Again, one of these OT examples. I think we're showing these examples in every call now. Sometimes healthcare, sometimes consumer goods. Here it's B2B coffee machines. important element from a customer perspective. These cases reduces downtime for these machines, thereby reduces their revenue loss. So there's really an operational value-added business case behind it, not just IT spend. And that's very important. It makes it all a bit longer in terms of sales cycles and convincing customers to deploy. But once they deploy, these are very important. sticky solutions, and again, things are done remotely, less travel costs for technicians, and again, an example where we expanded our solutions from IT devices to machine equipment and how really more tasks, everything can be done remotely. So with this, again, we will cover much more of this in the Capital Markets Day. I'd like to hand over to Stefan to take you through the financial results in more detail. Stefan.

Thanks, Oliver. Hello and good morning also from my side. Let me quickly summarize the financial highlights in terms of top line and profitability. As you can see, the billings increased at constant currencies 18% in Q3 and 21% for the first nine months, clearly confirming the pre-release financials and I think showing that TeamViewer continues to grow across all customer segments and solutions. IFRS revenue, which can be derived from the billings, net the change in P&IL effective default revenue. Those revenues grew 9% for Q3 and 10% for the first nine months, respectively. And I know we have explained this quite a few times, why there's such a gap between billings and revenue growth, but we continuously get questions on this, so let me quickly cover it again. The revenue growth rate is below billings growth due to the base effect from the recognized perpetual license revenue last year. As you all know, we discontinued perpetual license sales in 2017, but the recognition of those license sales still continued for a few years. And therefore, during 2020, we still recognized close to 40 million in the first nine months of perpetual license revenue. And obviously, we don't have that anymore in 2021, and that means it depresses our overall reporting revenue growth But however, this effect will completely disappear in 2022. And therefore, if we only review revenue from a subscription model, those revenues actually grew 18% in Q3 and 24% in the nine-month period year over year. If we now move on to profitability, I think we still enjoy very attractive margins despite the significant investments to our future growth. But clearly the billing shortfall, as well as the higher marketing expenses, significantly impacted adjusted EBDA, and therefore it was materially below the prior year quarter and was flat on a nine-month view, so to say. What are the adjustments? Next to the change in default revenue, our adjusted EBDA is adjusted for IFRS 2 charges related to share-based comp and other non-recurring costs relating mainly to one of projects, financing, and acquisition-related transaction costs. I think that clearly the most significant portion here are IFRS 2 charges in relation to share-based incentive schemes, as you all know, which are set up by the selling shareholders in the IPO and stock-based comp in connection with the UBMX acquisition last year. Both of those charges will significantly reduce in 2022. So just from a reporter perspective, profitability will substantially go up. Please note that both of those charges are not cash-relevant, and therefore the charges are booked directly against the capital reserve in equity. Nevertheless, as a result of those charges, the EBITDA in accordance with IFRS decreased by 42% in Q3 and 27% in the first nine months of the year. Now let's move on to our subscriber base. Oliver already explained on the next slide, slide 11, that our subscriber base expanded by net 5,000 subscribers during the third quarter and showed an increase of 11%. And as Oliver already said as well, only 2,400 of those subscribers fall into the enterprise category, which means generating more than €10,000 on an annual contracted volume basis. This basically leaves us with a very large group of loyal customers we can still up and cross-sell. And as you can see, our net retention rate for the last 12 months is now 96%, lower than in the past, clearly due to this one-time effect of rightsizing, which we mentioned in Q2. That being said, you can clearly see a remarkable improvement in our NRR in the third quarter. It reached 99% again after a steep decline to 88% in the second quarter, so very substantial improvement from our perspective. If we turn on to the next page, the geographical performance, I think you've already seen this at the pre-release, no changes there, therefore only the rough outline here. EMEA, most established and largest region, clearly benefited the most from last year's extra demand, and this year I would say most affected by the one of right-sizing. Nevertheless, despite this headwind, the business actually grew quite nicely with 25% in the third quarter and 22% for the nine months. I think overall quite a good performance. America delivered 17% growth in Q3 and 23% for the nine months based on constant currencies. Yes, growth was clearly more driven by the enterprise business generally. Then APEC, smallest region by billings, largest number of markets clearly, remains very diverse. I think we've talked about it, about APEC performance, and we'll mention it again and explain it in more detail at the CMT. But clearly, the growth was below our expectations. Specific points to mention is Japan. You all know Japan 2020, fast-growing market, a little bit of a dip in 2021, but I'm sure we'll get out of this growth dip again in Japan. China, clearly not satisfying overall growth there, and that's something which we are going to address also at the CMD, because we clearly see in some markets in the APEC region, which are more mature, Australia and New Zealand, for example, we are performing really, really well. So I think the right setup and the right go-to-market model actually showcases that we can generate significant growth in those regions. But again, we'll provide more details here at the CMD as well. Let's move on to the next page, covering the cost structure. Nice development with our GP margins with, again, around 93%. The GP margins remain comfortably above 90%, clearly showcasing that our infrastructure scales quite nicely. And even as we expand more into enterprise sales, and that's a fast-growing business of ours, we are able to keep GP margins significantly north of 90%, so very good development, I'd say. And clearly, as you can see from the expense line items, we've invested quite a bit over the last couple of quarters, clearly most pronounced in marketing, but also into sales and R&D. Q3 was the first quarter with the full impact from the brand investments. as you can see in the significant increase in the marketing expense lines. Bad debt is around 3%, slightly a bit more, but overall we expect debt to be in the 3% range for the full year and going forward as well. Let's take a look at cash generation on the next slide. I would say overall a very good picture here. We continue to have a very strong cash flow and high cash conversion rate, as you can see in this chart. Pre-tax cash flow clearly impacted, at least for the first nine months, by the payments for the sports partnerships. But if you take a look at the laboratory cash flow in Q3, it stood at 32 million and benefited from a strong cash conversion, as well as significantly lower capex and interest payments, both of those in line with what we announced a couple of months ago, that capex as well as interest payments should come down substantially. And you can see that here in our cash flow results. For the first nine months, leverage-free cash flow decreased 18% to roughly 90 million. And overall, that means we have a cash conversion rate of 47% of adjusted EBDA in the first nine months of 2021. But clearly, the healthy cash flow also shows that we are able to actually generate or convert significant amount of our adjusted EBDA into cash flow, and therefore driving a pretty good balance sheet position overall, as you can see in the next slide. Net leverage is down to 1.5. Clearly, balance sheet continues to be strong. Net financial liabilities have decreased by around 30 million. And as I said, leverage ratio down to 1.5 adjusted EBDA. And that gives us clearly flexibility and firepower to execute our growth initiatives going forward. And then maybe just wrapping it up on slide 16, clearly the outlook we have provided early October stays unchanged. No changes there for this year. I think that concludes our presentation. We will now open it up to Q&A.

Thank you. So we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from George Webb of Morgan Stanley. Your line is now open.

Hi. Good morning, Oliver and Stefan. I have a few different questions, please. Firstly, just on the FY21 guidance, obviously still it's quite a wide range. The low end would imply further deceleration over Q3, the upper end, and pre-material acceleration. What have you been seeing so far in Q4, and does it make you confident in any particular part of that range, or does it at least take the low-end scenario off the table? Secondly, I think on the pre-release conference call, you were looking to make sure that costs across the business as you go forward make sense against that reset growth profile, or at least incremental investment may slow. Has that process for analyzing the cost base already begun in Q4? And then lastly, on the marketing spend in the quarter, it was up to $34.5 million. Is that the new baseline we should think about moving forwards, or is there an element of the marketing expenses that you can flex downwards to a degree moving forwards, and we're only kind of one-offs in that line in Q3? Thank you.

Yeah, thanks, George. Good questions. Let me start with the 21 guidance and Q4, what we are currently seeing in the business. Clearly, As you pointed out, a pretty wide range of outcome for Q4. Why is that? Clearly, we have experienced quite a volatile performance in the business during the first couple of quarters, and that's been reflected in our guidance. I think it's a bit too early overall to say where we come out now at Q4, but clearly we aim to achieve a good result here in the fourth quarter. As you know, enterprise billings will be an important pillar of the final outcome of the fourth quarter. It's just a bit too early to assess. Then maybe on the cost base, yes, absolutely, that process has already started a few weeks ago, undoubtedly so. Very detailed process across all functional expense line items, and there will be more details around that at the CMD, as you would expect, so stay tuned for that one. And then marketing baseline, yes, clearly a significant amount of that Q3 increase is due to the brand partnerships. That's now part of our brand investments going forward, and I think as a rough assumption, that's not a bad baseline going forward.

Maybe just to add from my side on the cost question number two, generally I would say you can assume that we are moving at pace, really, and analyzing the cost base and also in developing measures, both on the cost side and also on the growth initiatives. Clearly, guidance, revision has sparked a significant amount of project initiatives good interaction internally within the management team and also supervisory board to really have a strong action plan at hand and execute as fast as possible. So that's fully in the works already.

That's helpful. Thank you. And just on the enterprise side, I guess, you know, to a certain extent, maybe it's conservatism, but the fact that Q3 enterprise billing growth was stronger than you previously messaged. Does that leave you more confident about Q4? Or is it still you need to deliver there and it's no real change?

Good question. I think it's just like probably early October, we've just been disappointed. I mean, the growth itself is clearly very good, as you point out, right? I think we've just been disappointed against our expectations of growth in the enterprise business. But overall, it's very solid growth, absolutely. I think When we pulled the numbers together early October, look, we had an ad hoc news which we had to release immediately. And therefore, we were just not able from a time perspective to pull together all numbers. And we want to be conservative rather than being too aggressive when we provide those news. That's been the main reason here. What does it mean from our assessment going forward for the enterprise business? I think we said it, Q3 closure, good, but below our expectations, right? But Q3 is the summer quarter. I think what we're seeing so far in Q4, That's all pretty much in line with our expectations. But again, that very much depends on November and December closure of the enterprise business on the pipeline.

Perfect. Thank you.

The next question is from Stacy Pollard of JP Morgan. Your line is now open.

Thank you very much. A few questions from me. First of all, looking at the growth initiatives and cost structure, and I know you're going to detail this at the CMD. but can you let us know whether we should be expecting any additional costs, either exceptional or ongoing? Second question, looking at the longer term, what percentage of revenues could enterprise be, I don't know, three, five years from now? Maybe talk about how you see that developing, and can you touch on the geographic split of enterprise billing so far? And then final quick question, what free cash flow conversion rate do you see going forward given the marketing partnerships? So just how should we think about that conversion forward?

Yeah, again, sorry, Stacey, I have to defer to the CMD in terms of analyzing any exceptional impact. So that will be, if there is anything that will be announced at the CMD next week, we're pulling together all of the numbers and right sizing and cost freeze and whatnot. So all of that is going into a detailed analysis right now and we'll provide more color around it at the CMD as well.

But I think you're talking, I mean, from a, Margin profile perspective, we look at the growth initiatives, and we want to take kind of the right initiatives to work against margin recovery, as we had said. I wouldn't see that there's additional cost maybe than one-offs if we do changes, right?

That was the question, yeah. The one-offs we'll pronounce. So there's no additional cost creep to right-size the company. It's certainly not the case, yeah.

Or investment areas, outside investment areas or anything like this. Correct.

Then enterprise growth, again, also pointing towards the CMD here, frankly. I think we said a couple of months ago that the enterprise business could become a third of our business a couple of years down the road. I think nothing has fundamentally changed there, and you can clearly see from the LTM Billings growth that the enterprise business is significantly outgrowing the S&P business, and we expect that to be the case going forward as well. From a regional perspective, in the past, it was mainly driven in EMEA for the first couple of years, I'd say, especially 2018 and 2019. Probably also in 2020, and now America is firmly catching up from an enterprise perspective, probably surpassing EMEA, at least in terms of speed and deal sizes right now. I think overall, right, we're pretty much balanced. Again, more color coming, but America should actually lead here versus EMEA region. But that being said, we have a pretty large install base in EMEA, so I think the potential is in both regions pretty attractive, frankly. With America, it's probably more playing catch-up, I would say, in the APEC region still early days and overall enterprise contribution relatively small. That being said, we have seen quite some progress also there in the more mature markets, Australia, New Zealand, and Japan, where we've closed a couple of nice enterprise deals. So I think in some of those markets, APEC things are coming together as well. Free cash flow conversion, I think what you can see in Q3, sorry, for the nine months as a total, I think that's pretty reflective of the free cash flow conversion going forward as well. I think generally speaking, you should not expect any major changes there, frankly, in terms of free cash flow. The business remains high-quality business, generating significant amount of cash flows. There are no major changes in working capital structure needed or so. So the only volatility is really relating to the advance payments regarding sports partnerships, which should be happening early of the year and the middle of the year.

Got it. That's great. Thanks.

The next question is from Hannes Leitner of UBS. Your line is now open.

Yes, thanks for letting me on. I have also a couple of questions. On the enterprise, you stated in the ad hoc release, 60% growth. It came in at 75% growth. Maybe you can talk there through the moving parts and with the total billing numbers staying unchanged. Clearly, non-enterprise grew slightly slower in Q3. So maybe you can comment there. And then in terms of headcount, is there any Any competitive pressure from people in incentivization, et cetera, especially in particular the U.S., with the labor market being quite hot there? Maybe you can talk a little bit about it.

Sure. Maybe enterprise quickly again. Early October, we clearly had to issue an ad hoc press release in enterprises. It takes a bit more time to calculate those numbers because it's an ATM basis including all customers which generate more than 10,000 euros. So we just need a few more days and I want to be in the conservative side basically when we put those numbers out and don't want to correct them downwards again. So maybe a bit too conservative here. Again, it also means, as you rightly pointed out, SMB, that's obviously at the expense of the SMB, because overall Billings stayed unchanged. SMB was not performing particularly strong in the third quarter. We know why, right, because also in Q3 last year, we did run significant amount of free-to-pay campaigns. This year, in Q3, very little effect of the free-to-pay campaigns, as you pointed out early October, yeah. So clearly not the best model for the SMB business, but a very strong quarter in the enterprise business. FTE headcount and sales increase. I would say what we have seen over the last couple of quarters is that for certain functions there is inflationary pressure. I think we are very competitive with our salaries, and we've onboarded a significant amount of new sales guides, as you know. And I think the issues we faced from a productivity perspective were not because we didn't pay enough. I think it's more like ineffective onboarding, which we experienced also due to COVID, generally speaking, that make life easier for the sales guys to onboard efficiently. I think from my perspective, there is maybe a little bit of inflationary pressure in certain functions, but I think that's well reflected with our margin guidance. I don't expect any negative or detrimental impact here going forward.

And then just to follow up on, in terms of the enterprise segment, what is your churn rate in terms of just really customer means or customers?

That will also be disclosed at the CMD or more details to be provided at the CMD. But as we said in the past, that churn in the enterprise business is significantly lower than the S&P business, as you would expect, right? And I think now the enterprise business is at a scale where you can take a look at churn number separately for the business. So that's something where we provide more details going forward. I think past numbers, low base, kind of volatile, but always lower than the S&P business. And now since it's becoming a more meaningful business, we'll provide more details there as well.

Thank you. Looking forward.

The next question is from James Goodman of Barclays. Your line is now open.

Good morning. Thank you very much. Maybe to come back to the subscriber additions of the 5,000 in the quarter, we discussed it at the pre-announcement and you added some commentary to that today. But I wondered if you could go a little bit further. I'm trying to square still, I guess, the 20 million or at least the half of that of new billings, which didn't come from enterprise with the reduced churn and the improved net renewal. So I'm working out what customers have been lost within that. Is it right to think that that's a sort of cohort of particularly low-value customers in there? And if so, you know, can you help us just with what's going on in terms of the substructure of those customers in the base? And I guess to maybe clarify on this, as you look forward, say, to Q4 at the midpoint of guidance, would you expect the subscriber number to reaccelerate back to those historic levels you called out? Or is it more the case that actually you're saying that you don't need to see large net subscriber numbers to reaccelerate the growth in the business? That's the main question. And then I'm just going to ask you quickly on, I guess, the leverage being down, CMD coming up. Are you going to talk about capital structure at all? And have you considered possible deployment of cash into buybacks or something else, considering where we are? Thank you.

Sure. Maybe subscriber growth, 5K net additions. Yes, your assumption is right. The churn, which we see, is clearly more biased towards the low end of our customer spectrum. And also in the prior years during Q3, we did push significant free-to-pay campaigns after six months of pause during the COVID pandemic breakout. So, and clearly that reflects an entire churn in the following quarters because that's typically when you monetize free users in the first year of renewal, basically, then they need to make up the decision, do they want to use a paid platform? software, or are they moving back to a free version? So you also always see a little bit of elevated churn there. But I think generally speaking, our subscriber churn is much more biased towards low-value ASPs. I mean, that's also reflected in the ASP development of our SMB subscriber base. There has been a consistent increase in our ASP and subscriber base, which It really confirms that the new subscribers we bring in, we bring them in, generally speaking, the higher ASP and the ones which are churning are lower ASP subscribers. From a trend perspective, I would not expect that trend to reverse, frankly. We did run campaigns in Q1 and Q2. We've paused them in Q3. We also paused them right now. And obviously, whenever you pause free-to-pay campaigns, that resides in lower subscriber intake, right? But again, at a low ASP. So I think that's all baked into our forecast, but I would not expect a trend reverse in subscriber growth over the next couple of quarters, frankly.

Yeah, and James, your assumption is right. We don't need that subscriber growth to work to generate our billing scores. I mean, it's really the... The whole company, I think, has moved and developed over the last years towards upsell, cross-sell, move to enterprise, developing our customers into new use cases and broadening the use case, and also focus our lead gen on higher value customers. And you see that in what Stefan mentioned, if you compare ASP, incoming ASP, outgoing ASP, so we'll disclose much more around that in CMD. But that's the whole point. And then Additional subscribers that come in at lower ASPs are a small addition to that, and that's the way we look at it at the moment. And therefore, I think please don't read too much into the subscriber addition and development. It's just one of many factors, and it's becoming smaller and smaller in importance. And it's also important to focus the business on the cross-sell and up-sell initiatives across the different segments.

And then from a capital structure perspective, that's something clearly which is regularly on the table at the board meetings, as you can imagine. We are now in a very good balance sheet position, net leverage coming down, as you pointed out. So I think that's a good position to be in. Again, that's something more where we elaborate on the CMD about claims going forward.

Yeah, that's clear. Thank you. Maybe a quick clarification. Just on your comments last quarter on enterprise, that you had some some slip deals, I think, and some that sort of came in smaller. Was that just part of your conservatism, Stefan, in terms of sort of interpreting the enterprise number, or do those comments still stand that there were deals in enterprise that were slipping into the fourth quarter?

Look, I think, generally speaking, enterprise business was performing strong, but below our expectations, so to say. That's been a little bit the conundrum which we faced in Q3, right? us internally being unhappy, but clearly still producing very strong growth. Some of the deals came through, as you said, but at a lower ASP. Some of that will hopefully then come in in Q4, maybe Q1, Q2 next year. Let's see. I think we need to be cautious there after what we experienced the first couple of quarters. I think it's a little bit of conservatism on my side, but frankly, it's a bit too early to say we've turned the ship here. I think I need to see more consistent execution against our pipeline, frankly, and that will probably take a couple of quarters until we are fully back on track here.

Okay. Thank you.

The next question is from Ben Castillo-Bernard from Exam BMP. Your line is now open.

Good morning. Thanks very much for taking my question. Firstly, on the number of new enterprise customers that you added in the quarter, that looks to be well below the run rate seen over the last 18 months or so. And what's changed there in Q3? And could you help maybe explain that a little bit? And then on Q4, the implied guidance, the little question previously, but it looks very cautious, particularly at the low end. I'm just wondering, you know, how much caution are you baking in there around things like conversion rates in the enterprise segment? Are you still expecting that sequential step up in Q4, given its bias towards enterprise deals being signed? And I'd have a quick follow-up. Thanks.

I think it's a good question. And I think the reason why we have picked the guidance is really because there has been volatility in the business. I mean, let's not forget, September was really the first month we were operating non-COVID back to office, salespeople able to visit customers. And now we are basically the second month under the belt. So, therefore, we've given a wide range, and it's really too early to tell because, again, especially in the enterprise business, October is the first month of the quarter, where in the first month you don't have much visibility, although we're positive. It's in line with expectations, happy on how the business is going, but, again, just one month. And then Q4 is, of course, also a big enterprise quarter, and if you are a growing company with high accentuated growth in enterprise and you're going into a Q4 after Q1 and Q2 which was very difficult then Q3 slowly coming back visibility is just low so all looks good but the range of outcome is quite significant nothing to worry about but it's also too early to be super excited and super positive so give us the weeks that are ahead of us to understand better where we come out.

And then maybe in terms of net additions to the enterprise business, actually that's not a number which concerns me. Frankly, in Q3 I would never expect that to be a stellar quarter for net additions in the enterprise business. Summer quarter, yes. Summer quarter. I think more important here, also in the enterprise business, we've been able to consistently grow the ASP, right, of new enterprise customers. And that's also what you can see. But from my perspective, I wouldn't read much into Q3 net additions there.

Okay. I just looked. I mean, Q3 last year was a summer quarter, and you added over 200 enterprise customers. By my calculations in Q3 this year, you added 160-something. So that's almost a 20% decline. I just wondered if that seems to be quite a big change for a lifetime.

Yeah, but look, there's a 20% decline in the number of logos we added, but if I add a The record logo in the Americas with more than €700,000, I mean, that contributes to the enterprise growth. I think we shouldn't read too much into logo additions in enterprise, especially comparing this year and last year.

And not in Q3, certainly.

And not in Q3. So, yes, you're right, but that's not a driver of outcomes in the enterprise space.

Okay, and then do you have any updates on any proceeds or developments from the SAP partnership, any commercial wins or examples you can highlight, or should we wait for next week for that?

No, I think that's early we started, so the co-selling is underway, so both companies together sharing leads and working on a significant number of leads. But, of course, these are enterprise deals, so too early to talk about any conversions there. This is something which will be discussion probably towards the end of the year, Q4 closing maybe into Q1. So the sales cycle, as you know, in the enterprise business is It can easily be six months, three to six months, three really the low end, six months more the norm, and therefore it will take some time. I think we started officially to go out in the market together I think six weeks ago or so.

Okay. Thanks very much.

The next question is from Mohammed Moala of Goldman Sachs. Your line is now open.

Great. Thank you very much. Morning, Oliver, Stefan. I had two questions. Firstly, just talking about sort of the enterprise business, the mix of kind of deal sizes, you know, has shifted sort of year on year. Is this kind of, you know, in terms of how you run this business, I know you were doing a lot of kind of dependent earlier in the year on some very large deals, including kind of seven-figure deals. Have you sort of shifted your strategy around on focusing on kind of more of a the regular size deals and then driving the kind of cross-selling, upselling that you talked about. And this should be kind of the model kind of going forward with the larger deals sort of more on optionality. And related to that, I don't know, I may have missed it, but did you disclose a net renewal rate for Q3 in enterprise? So just curious to see how that's evolving with the cross and upsell. And then my second question was around sort of the cost base. It sounds like there could be some cost optimization that you will do, but you're looking to kind of reinvest that back in the business. So is this now going to kind of largely come on the enterprise side? And, you know, are there additional investments perhaps that you need to make to kind of further kind of drive consistency in the enterprise business? And, you know, to what extent are some of the sports commitments fixed? Do you have any kind of clauses there, maybe not in the shorter term, but over the longer run that allow you to kind of downscale those investments? Thank you.

So, yeah, let me go first. Maybe enterprise business. There has been no strategy change. I think it's a collection of activities. I think, as you rightly pointed out, the big seven-digit deals, I wouldn't say that we strategically go after them, but they happen every now and then, either by scale-up or just because it's a great opportunity and customers want an enterprise license agreement or at least for part or regional upgrades as happened in Q3. But no change. I think the way you describe it, high five-digit, low six-digit deal at land and then expand from there is probably what is more the successful motion that we're seeing. especially in America and in EMEA APEC we are almost one step before that low five digit range has land and then expand from there so I think that's how I would describe it no explicit strategy change just the way the business evolves cost base so yes we look at our cost base we look at freezing the head count and also look into the non FTE cost of course I don't think what you said is correct, that we will reinvest that into growth. Historically, we've always said that the cost increase that goes in line with billings growth is reinvested, or if we had 30% billings growth, we had 30% cost increase, and that was reinvested into the business growth. I think the change now here, and we will elaborate more next week, but the change here is now that we feel that over the last two years we have grown very nicely in terms of staff, systems, infrastructure, offices. We can probably put a break here, a pause, and generate the growth of the coming year without significantly increasing the cost base beyond the run rate. But, again, more to come next week, but that's the fundamental concept. So, like, pause in the cost buildup. Outside of the marketing partnerships, which is a special thing, which Stefan can also go into more detail, or we can go into more detail next week, these contracts are fixed, so there is no opportunity to downscale or flex it, as has been also questioned before, fundamentally five-year deals with a clear payment plan. I think it's also fair to say that in both deals, we've got... a good upside in terms of media value that is embedded there by the players and the drivers and additional venues and location races. So I think we also need to acknowledge that relative to what the time of the – when we did the deals, there was some inflationary trends, more media value, and I think fundamentally these things got significantly more expensive. So we have to factor that into these considerations as well.

Got it. Thank you.

The next question is from Gustav Froberg of Bernberg. Your line is now open.

Good morning, everyone. Thank you for taking mine as well. I'll keep it short. I just have two. Firstly, on the organization, I know we talked a little bit about hiring freeze, but could you maybe also talk a little bit about employee attrition and how you've seen that in the last month and whether or not attrition is improving, worsening, or staying the same? And then I was hoping you could tell us a little bit more about the regional churn dynamics that you're seeing. in the business on the billing side, so just a split between EMEA, Americas, and APAC would be great, please.

Yeah, I go first, and then Stefan does the turn. I think employee attrition largely stable, a few losses here and there to competition, pay more people, more companies active in more markets now in the space we're in, so Maybe a bit elevated compared to a year ago. Clearly a year ago, everybody was happy to be employed. No movements. We actually hired through the crisis, through the pandemic. Now we have a bit higher tuition here and there. I think something to watch out for. There is inflationary trends on the labor market, as Stefan also suggested, and you suggested in your question, especially in the U.S., so something to watch out for. I think it's on us to, beyond the freeze, also manage attrition, voluntary, involuntary, smartly, and we'll do so. I mean, we will certainly use the time to reallocate resources to the strategic areas and make sure that we are an attractive employer in these strategic areas and in other areas, downscale a little bit. So this regrouping exercise is going to happen over the next month. It's already in the process, so to speak. But all in all, currently no big worry, but a watch out, as you rightly point out. John, Stefan?

From a German perspective, I think the way how I cut it is much more by customer segment necessarily. I think it's a bigger driver in terms of ASP and SMB enterprise. I think that's the key driver. And then, yes, you have regional flavor, but the bigger driver is clearly the ASP segment. Their regional, I think, behavior is pretty much the same. You have higher churn in the low ASP segment, right? Again, free-to-paid monetization. Those countries who depend more on the free-to-paid monetization obviously then have higher churn. I mean, China, for example, or India, you have higher churn when those customers come up for renewal, the previous free users, so to say. enterprise, higher value ASP churn pretty much sticky across all regions, I would say, and pointing towards the stickiness of our products, frankly, by regions.

Yeah, that's super. Thanks. I'll save some questions on cost for the CMD next week.

Okay. Very good. Thanks a lot. Thanks for the questions, and obviously looking forward to seeing you and speaking to you at the CMD on next Wednesday in a week's time. Thanks very much.

I just see it came in late, but we have one more question I think that we can still take.

Okay. So then this question is from Victor Cheng of Bank of America. Your line is now open.

Hi. Thanks for taking my question. Just two from my side. You know, given the low net new subscribers and strong competition in the lower end, can you provide some color directionally on how the number of active free users has trended. Is it still growing or has it flattened or in decline? And then second question to a point regarding free-to-pay conversion. I believe historically that contributed roughly 3 to 5 million per quarter. Just trying to understand here how, you know, this is a key driver for slow SMB growth in Q3, especially given the improved turn in the quarter. Thank you.

Yeah, let me take that. Active free user development, there's a lot of moving parts there because in markets that have lots of free users, we have introduced account enforcement for better security and better user experience for other users, for paying users. I think that's a topic where I would really refer to the CMD because we will have meaningful disclosure around that to give you a bit of sense on country split behavior users, so Bear with us on this one. On the 3 to 5 million free to pay per quarter, that's correct. That was the rough guy. I mean, we basically gave that as a 15 to 20 per year, to be honest, and not per quarter because we're saying that that happens at times when it makes sense and it should not happen when it doesn't make sense. Specifically, this Q3, no real contribution, very little contribution for the reasons Stefan mentioned. We had done more free-to-pay conversion in Q1 and Q2 this year, and now Q3 was a time when we didn't use it, focusing on other initiatives as we had discussed, and the same is true in Q4 this year.

Got it. Thank you.

Okay. Yeah, very good. That's it then.

Okay. Thank you very much for your questions. I'm looking forward to speaking to you next week. I think there will be a good amount of disclosure, which I think will answer quite a few of those questions around SMB and the enterprise and trends there. Okay, so thanks. Goodbye. Thank you very much. Bye-bye.

Bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.