Earnings Call: Q2 2021

Aug 3, 2021

Welcome to the Second Quarter First Half twenty twenty one Results 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. I now hand over to Carsten Kelleher, Head of Investor Relations. Thank you very much. Good morning and welcome to you all to TeamViewer's Q2 First Half twenty twenty one results call. In a minute, Oliver Steil and Stephan Geiser will take you through the business and financial update with the highlights of the first half. As always, we will conclude today's call with a Q and A session following the presentation. But before we start, I would like to remind you of the note on forward looking statements that you can find on Page 2 of the presentation. Let me now hand over to Oliver. Thank you, Karsten. Good morning to all of you. Thanks So H1, 2021, clearly full focus for the first half of twenty twenty one was on the execution of the various strategic growth initiatives that we've put in place, as we told you to foster our profitable growth for a longer period of time. So it was very eventful year. But at the same time, the global sales team really concentrated their efforts on customer retention as we entered the 1st renewal cycle of the so called lockdown cohorts from last year, so really Q1 and Q2. So it was a busy year, busy first half. And I think let me take you through the achievements, which we think are remarkable 1 by 1. Look, we start with our AR products and the strategic partnership. During the first half, we continued to extend our solutions portfolio with a special focus on building really a leading position in the rapidly growing enterprise augmented reality market. Following the UVMAX acquisition in 2020, we executed on our bolt on strategy, and we acquired Upscale in Q1 and Viscopic in May in Q2. By the way, Wizzco Peak is a leading German innovator of mixed reality solutions and interactive 3 d visualization, which is actually in addition to the features that we have in the Frontline platform. So it adds mixed reality and 3 d components to the Frontline platform. And Frontline is the AR based workflow and remote support suite that we're using for industries and enterprises globally. And the integration on Ubimax is anyway very well advanced, as you know, but also upscale and this topic integrations progressing really very well. Good cultural fit and really good product fit as well. In addition to expanding our AR capabilities, we did join forces with SAP to actually drive the adoption of AR technology, And that's happening in the context of SAP's Industry Cloud. The recently announced partnership, we will kick it off with the integration of TeamViewer Frontline into SAP Solutions for Asset and Service Management in the coming weeks, so it's around the corner. And I think this partnership underlines TeamViewer's leading position in the enterprise AR solutions. And it also proves the scalability across use case and applications. And I think that makes it even more compelling for customers because quite some customers are interested in this integration of AR into their SAP back end system. For example, we Customers today already, Coca Cola Hellenic Bottling Company, the largest bottle of Coca Cola. And for example, DB Schenker, They are actually using TeamViewer Frontline integrated into their SAP systems. And that's clearly, I think the future that people companies try to integrate those 2 solutions to make it an end to end solution in their core operational processes. Also very important, key to our growth strategy, as we said, is to raise our brand awareness on a global scale across all customer segments So the marketing partnerships that we entered into in the Q1, they have now been activated, early days of course, but they have been activated with the introduction of Mercedes Formula 1, Formula E cars now carrying the TeamViewer logo, and we just recently launched the new Manchester United shirt for the season. So we are still pre season. I think there were 2 friendly games and we presented 2 jerseys with our logo, and I can give you some stats later in the presentation. Quite impressive, of course, if you see the reach of these brands compared to what TIM you alone would be able to do. The other piece of the business, clearly Q1 and Q2 are very much driven by retention efforts to retain local lockdown cohorts. So as a result of the team's efforts, we kept the subscriber churn stable, Very important. And we added 20,000 subscribers also in the Q2, so very impressive, getting up to 623,000 subscribers by quarter end. Again, this can be a very small subscription, a few €100, and a very big So with this increase in subscribers, we achieved a 17% year over year growth In subscriber numbers, subscriber count, I think very strong given the very elevated extra growth that we had last year. Clearly, we retained most of these customers from the 1st wave. So it was very Except for retention effort in that respect, but and that's the negative, the renewal values in April, May, we're lower than we had anticipated. So we were a little bit too optimistic about the renewal value. Quite frankly, hard to predict. I think we've told you that we saw activity on the license as in other years. So we felt quite comfortable that these customers would stay with us and use because we saw the usage of the license. That turned out to be true. But then the 1 year renewal in combination with the reduced lockdown effects and customers gross regions going back to normal, they had to reduce the capacity in some places and sometimes also renegotiate price and that reduced the renewal value. So as projected in the beginning of the quarter, this down selling or downsizing led to a decrease in the net retention rate to 95% on a reported basis and roughly 98% when adjusted for FX, in fact, from my opinion, given the significant extra demand last year, this is still a very good results, albeit below our expectations, very clearly. Then we had a rebound In Renewal Values in June, which was good, and we had a strong enterprise performance towards the end of the quarter. So I think we have a few weeks of the second quarter, which kind of felt normal after this massive retention efforts that we had. And with that, billings growth came in at 18% at constant currencies for the 2nd quarter and 22% at constant currencies for the half year. So below expectations for the Q2, but all in all for the first half, I think still very solid if we compare or take into account the Significant growth that we had in the 1st year last year. At the same time, we retained our sector leading profitability with 55% adjusted EBITDA margin for the 1st 6 months and also in the Q2, 47%. Finally, also what happened in the first half Q2, I'd like to mention some additions to our senior management team. So we had Liza Agona. She joined the Executive Board as a Global Chief Marketing Officer, she will be the driving force of our marketing strategy and will of course introduce her more broadly during one of the upcoming IR activities. Further additions to the senior leadership team are Patricia Nagel, President, Americas and Georg Beichlak as Executive Vice President, Strategy and Proper Development. Both can draw from really many years of experience in their fields, and they will be an integral part to our growth strategy. What we'd like to do now is to take a closer look at our subscriber growth and retention and especially have a look at our so called core business, which is incredibly strong, and I think we felt it might make sense to show you a little bit churn development and also the churn characteristics by segment. So while we continue to ramp up our enterprise business, we're steadily increasing ACV and customer count. If you take the lower ACV customer segment, we have now more than 620,000 paying subscribers. These are the customers that, just from a numbers perspective, are driving the churn rates that you see. And in prior years, there was a one off positive effect. The churn numbers, they benefited from our most loyal perpetual customers they have migrated to the subscription business first. So if you take people who have been renewing their perpetual license year by year And then they move to subscription. Naturally, you can expect that the churn rates are very low. And of course, now in a more normal situation we have influx of new customers, the situation is slightly different. And also, we rolled out a license at the lower end. So the cheapest entry license, the remote access license to help expand our customer base at the low end. And This is a very good license, which is also together with the business license is a very effective product for free to paid campaigning. Naturally, subscriber churn in this entry segment higher, leading to an increase in overall churn, which we saw the peak in Q3 2020. And we then had, of course, an increase in retention efforts over the years. And through our very successful efforts there since the beginning of this year, we grew net subscriber additions sequentially from 17,000 to 19,000 to 20,000 each quarter, while the churn rate remained around the Which I think is an important number to keep in mind. With our set of entry licenses, we provide customers with a range of packages that fit their individual needs in terms of seats, number of managed device Also other features such as user and device access reporting or mass deployment and so on. And while all licenses can be used to address remote access, remote support and collaboration use cases, this means that the higher ASP licenses are typically used by larger SMBs and even enterprise addressing various use cases across On the other side on the one side, IT use cases, but more and more, of course, OT use cases. The way corporate license it can be used for attended access, unattended access and you can very well connect into operational equipment with it. So of course, if you have customers There are more sizable, the larger end of the spectrum, corporate licenses and the usage into OT. The customers are generally stickier. And of course, they show greater up and cross sell potential, which is resulting in lower subscriber churn and higher NRRs. And if you look at the slide, clearly, if you look at the corporate license, There we're talking with high single digit churn rates and not the churn rates that we see in the entry segment. So very stable, very healthy call from our perspective. This is also the area where our mid market and solutions sales team then drive the billings expansions because these are the customers that we try to upgrade into either Tenpa or we trigger cross sells into remote IT management or augmented way. What is also important, of course, is customer satisfaction. That's actually the beginning to kick start a Several review platforms rank our entry licenses very highly. For example, TeamViewer won the Gartner here inside Customer Choice Award 2021, which operated by TrustRadius and also G2, which is a very important comparable site in the U. S, puts us very high in various categories. There's also review sites where we need to improve. We're working on this. We take customer feedback very seriously. The market by market piece really also has to do with the free user and paid user experience and the transition between those, but we're working on that to really create the best user and best possible customer experience there. We go to the next page. I'd like to talk a bit about our enterprise growth and our customer base. So during the Q2, the number of enterprise customers increased again to 2,252. That's up 55%, while the billings associated to these enterprise customers expanded by even 66 to now EUR 6,000,000 EUR 7,400,000 over the last 12 months period. This means that the average contract value per enterprise customer has now reached €30,000 which is 3 times what we put as a threshold of €10,000 which we put out at the time for the IPO where we said we'd like to give you an indication of customers moving to 5 digits because that's the different characteristics of customers. So if you remember, we started with this number above 10 ks, now this segment is on average at 30 ks, which I think is a good proof point of the enterprise success. Three elements are driving this growth. Firstly, we have new customer acquisition very clearly via our mid market and enterprise sales teams and also via partners. Secondly, we have very significant ACV expansion of existing enterprise customers by AB and Trostel. Here, we successfully moved 40 customers from the 10 ks to 50 ks ACV range to above 50 ks bucket, which now comprises 46% Compared to 34% at the end of last year, also very good success. And it's also very, very nice To see that we increased our 200,000 plus ACV deals quite significantly at the time of IPO. I think we have 1 deal in this category. Thirdly, upselling existing customers to above the 10 ks threshold. So TeamViewer's large subscriber base, I think we have, of course, ample opportunity to upgrade existing corporate licenses, the one I was showing before, through the Tencent Suite. So that's actually this transition point where we try to use our sales channels to move customers to Tencent. What they get in exchange for it is they benefit from more security features such as conditional access, single sign on, and of course, it's a seamless platform provision seamless solution across all devices and all platforms under single sign on security, which makes it much more usable for more use cases for our customers. If You go to the next page, you can actually see the example of this. I come to the deals on the right side, but also just one example, Heidegger's Tokmachin, very much you know them, Global Leading Manufacturer of Printing Classes and Solutions for Print Media Industry, 170 year history. So in digitalizing, the company upgraded to Tensor to be able to remotely connect to its proprietary software solution and the machine worldwide to provide fast and efficient technical support around the customers who know us, who use us in the IT environment, but then expand the use of the product to the operations environment by connecting to totally different machinery than the office equipment. I mean, why are they doing this? Of course, reduction in machine downtime Customer productivity. This is a strong example, but very typical for what's going on in our enterprise mode. You see here, again, Q2, we closed the series of larger deals, again, across use cases, regions, customer verticals. 1st on the list, for example, is the leading provider of packaging for consumer goods, more than 20,000 employees worldwide, we're using TeamViewer in different areas, and their goal was to implement a group wide remote support solution that is centrally managed and that can easily cope there with increasing capacity needs. The Tensor suite provided exactly that Plus convinced they convinced the client because of the security features like single sign on seamless integration into Microsoft Teams. Again, frequent example, TeamViewer sits somewhere in IT departments around the organization, Then they consolidated into a larger Tencent deployment, benefiting from the integration we have with Microsoft ServiceNow, Salesforce and the likes, And of course, benefiting from increased security functionalities that are absolutely mandatory in today's growth. Completely different use case is addressed by a restaurant chain, which uses front line. Again, AR Solution Industrial Workflows, in this case, used to provide employee training and to audit the food preparing process to ensure high quality standard. So very different example of using our solution, a very different vertical and a very different business process. As you can see from the list, we've been winning deals in many attractive sectors. It's healthcare, it's automotive, It's retail energy. So really, it travels the use cases everywhere. And customers have increasing security demands, which we can meet. They require true interoperability and scalability, which we can deliver with our platform. And they also want a long term partner that they can innovate together with and bring their digitalization projects to life. So we also do lots of co development the customers or enhance our solution piece of our solutions to make sure we have the best possible And before I hand over to Stefan to cover our financials, I would also like to spend a minute or 2 on the launch of the marketing partnerships, I've got many questions for that, of course. After the announcement of our global sports partnerships with Manchester United and Mercedes Racing teams both Formula 1 and Formula E, which happened in March, as I said, we've now started both of them, and we were able to drive our brand awareness already, although early days, clearly. Just a few examples. So for example, the Formula 1 launch in May, Formula 1 reached around 5,000,000 people via Facebook and Instagram channels of our partner. Just to give you an idea, just at launch, that is 2.5 times more then our own Facebook and Instagram followers will just buy the initial launch, small video that we've produced. Additionally, I think very interesting number. I don't think we have on the slide, but just two races. We just got the evaluation and the assessment of the media value of the first two races of Formula 1 in Monaco and Baku, so some weeks ago, And just those two races generated more than US20 $1,000,000 of advertising value equivalent in media. 20,000,000 rated out of 23. Those of you following Formula 1 a little bit I know that since Monaco and Baku, the intensity of the racing has significantly increased. Your ship has increased. So it's a very lively season this year, And that will drive media value very, very significantly up throughout the season. That's the Formula 1, Formula E happened in parallel, of course, much smaller. On the other side, Home Shirt launch of Manchester United with our branding that happened in mid July. A small video about this launch, so no match, no player, just an announcement of this alone, generated around 30,000,000 of use in media coverage, as well as 8,400,000 views on the club's digital and social media channels from LinkedIn to Wibos, so present everywhere really. And these numbers already show the impact that the partnership will have in the next 5 years to present our brand. And again, it's just the beginning. It's not even a real game, not even real sports content, real. It's a kid launch. Of course, we are going to provide more measurements of this. We're going to measure the success of the partnership going forward across 3 dimensions, firstly, brand activation, so brand awareness, consideration, media exposure, Then product activation, we can look at downloads and we can look at new use cases and product penetration, of course. And then after all, sales activation, meaning win rate, net promoter score, customer loyalty and so forth. So It will there will be more and more KPIs and numbers coming to show you the value that these partnerships create for us. But again, please remind remember, this is just the beginning in football. The season hasn't even started. Additionally to these external metrics, it was also great to see how our employees became excited about the partnership. Clearly, these days, employee engagement is very, very important. There is a war for good talent. And hence, we we try to drive employee engagement as much as we can. I think we were quite successful in involving them in the launch activities like meet and greet, participation at first events, all under corona restrictions, but still possible, and providing them with partner merchandise as well as content to share within their social networks. So it's starting to move, lots of content pieces created, lots of interesting material that people are proud of and share in their communities and that is being shared by the customer. And with this kind of first short glimpse on these partnerships, I would now like to hand over to Stefan, who will take you through our financial results in more detail. Yes. Thank you, Oliver, and good morning, everyone. So let me summarize the financial highlights in terms of top line and profitability and all the reconciliation towards our IFRS numbers. So as you have seen and read, total group billings increased the constant currency is 18% 22% for the first half, clearly short of our own expectations, but still showing the TeamViewer continues to grow across all customer segments and solutions and clearly beating very tough comps from last year. IFRS revenues, that will become an increasingly important metric for us, which can be derived from billings, net change in P and L effective deferred revenue, they grew 7% and 11% for Q2 and H1, respectively. So growing below billings, why is that? Clearly, as you all know, we fully discontinued the perpetual model a couple of years ago. However, in H1 2020, we still had around €30,000,000 of those perpetual revenues in our P and L, which you don't now have anymore in H1 2021. Therefore, if you strip that away and only take a look at our revenue from subscription model, which is ARR, frankly, those grew by 28% in H1 2021. So this metric will become more important going forward, and therefore, we start to disclose that as well. If you take a look at our profitability on the right hand side of that graph, we clearly kept our industry leading margins despite the significant investments in our future growth, mainly due to the step up in marketing expenses, our adjusted EBITDA in the Q2 remained unchanged compared to last year, while H1 actually grew 12% Year over year, yielding a margin of 47% in Q1 and 55% for the 1st 6 months. Next to changes in deferred revenue, EBITDA is adjusted for IFRS 2 charges, the technical term, but that's largely relating to share based comp. And we also eliminate some other nonrecurring costs related to M and A or financing and acquisition transaction costs and so forth. I think important to point out here that the most significant portion are IFRS 2 charges in relation to share based incentive teams set up at the time of the IPO through the selling shareholder and stock based comp in connection with the Ubimax acquisition last year. Very important is that Both of those charges are noncash effective, so it doesn't result in cash outflows. And therefore, those charges are booked directly against equity. And both of those charges actually will pretty much disappear in 2022. But as a result of those, EBITDA in accordance with IFRS decreased by 19 but still yielding a 34% EBITDA margin compared with our IFRS revenues. So let's talk about billings and the billings dynamics on the next slide. I think Oliver explained a few of the dynamics already. Overall, very pleased with the subscriber development during the second quarter, strong customer retention and adding new subscribers and therefore total subscriber count increased by more than 20,000 during the second quarter, pretty much the same increase as in Q2 last year and more net adds than in the last few quarters. So very nice and good development. And obviously, that represents a significant potential to drive growth within this very large installed base. As Oliver already mentioned, only 2,200 of our paying subscribers fall into the enterprise category, generating more than €10,000 on a yearly basis. This basically leaves us with a very large group of loyal customers, which we can still upsell from our entry or call licenses to Tensor providing state of the art features, which Oliver already mentioned, and obviously also sell AR solutions and remote management solutions into this installed base. We already explained that all are happy with the retention of those drivers, but clearly the renewal values in April May were lower than anticipated, as we just explained. Clearly, this had a significant negative impact on our net retention rate. The net retention rate for the LTM period was 95% due to this onetime effect of rightsizing as well as taking into account FX headwinds, primarily relating to the weaker U. S. Dollar. This also weighed on our NRR and reduced NRR roughly by 3 percentage points over the last 12 months. In June, trading momentum improved significantly due to this rebound of renewal values and a very strong enterprise pipeline conversion towards the end of the quarter. I think the continuing ramp up of our sales force since the beginning of the year has clearly been a key driver residing in more pipeline creation as well. I think by the end of the year, we've increased our total sales force by nearly 50% year over year. Let's cover the regional highlights. But generally, before we do that, I would generally say that our significant increased sales teams have certainly not operated under the best and easy circumstances. I think we should not forget that nearly all of our significant number of new joiners have not seen the nearest office or hub nor met their fellow sales colleagues or product management marketing at all during the last 12 months. So I think they didn't have any benefits from working with their colleagues, frankly. So that made their initial ramp up certainly much more challenging, especially for newer use cases, newer products. This is now largely behind us, people moving back to the offices, and this should result in quite some acceleration and clearly better sales efficiencies in the second half of this year. Let's talk about the Americas. As we mentioned, beginning of the year, we had a bit of a soft start, as we mentioned, but that we accelerated quite significantly, very good pipeline build and some early signs of moving up the value chain and now addressing larger ticket sizes in that market, something which was quite a while on our priority list, I think we talked about that the ASP in the enterprise segment in the U. S. Should actually be higher than in Europe. I think now we see that in enterprise pipeline at least, so very pleased with that trend. And I think this trend towards larger ticket sizes is driven by a variety of topics, good traction in augmented reality, but also for our enterprise platform, also larger ticket sizes and remote management. So really very good traction moving up the value chain here. Generally speaking, all go to market channels performed well in the Americas, again, with the backdrop of people working remotely, which certainly made their lives tougher. But nevertheless, Americas again contributed the highest growth of 26% in Q2 and 27% for the first half year if we strip away FX impact. And as you all know, we have now a new President of the Americas, Petitator, And she and her team, they focus relentlessly on sales execution and moving up the value chain as I just discussed. So that should bode well for the future. We take a look at EMEA, most established and largest region. Last year, they benefited the most from last year's extra demand. And this year, vice versa, they were most impacted by the one off rightsizing during the first half, significantly expanded our sales force, and they were very successful in focusing on retaining customers. But clearly, overall, renewal values were significantly below our expectations. Early renewals in Q1, also we pulled forward some of the Q2 renewals that didn't help either in Q2. While renewal is now sharply picked up in June, we also saw a very good enterprise conversion towards the very end of the quarter. But the rebound in performance could clearly not make up for the lower renewals which we've experienced and therefore resulting only 40% growth for the quarter and 21% growth for the first half. I would like to point out here that the renewals of our core licenses, remote access business in premiums, they were not materially subject to such rightsizing that took more place in the higher ASP values that customers bought in panic mode last year. While there's always slightly higher subscriber churn for those products, renewal values are actually very solid and the average selling price were stable and actually even slightly up compared to the first half of twenty twenty. I'm generally very pleased, however, with the team now being back into our offices and creating lots of positive momentum again. APAC, smallest region by billings, large number of markets, remains diverse, to be frank, in terms of performances and dynamics. Overall APAC growth was clearly below our expectations. That's not acceptable. Frankly, a couple of specific points here. Japan, 1st of all, we were not able to compensate for larger than expected down selling in Japan. As you remember, we had extremely strong 1st 6 months in Japan last year, became one of the fastest growing businesses in within Team Europe, but this year's development is so far below our expectations. New business win was not sufficient to compensate for a down sell in Japan. I think the picture will now improve and has to improve, But it is something which we didn't have on the radar screen. Performance in China, overall also not satisfying. I think Despite the fact that we want some early adopters of our newest technology in those markets, which is extremely good to see, I think the overall growth is not reflecting our ambition. But on the other hand, we also have very mature markets like Australia and New Zealand, for example. One of our more mature markets, as I said, but those performed very well, nice customer wins across the entire customer segment, including large multinational companies with now significant billings potential on a global level. So very strong performance in that part of APAC. Let's turn the page to cover the cost structure. Again, very high GP margins, 92%, remaining comfortably above 90% is our infrastructure clearly scales very efficiently despite the fact that we expand into enterprise with larger deals and more complex use cases. Clearly, this cost structure also shows nice in OpEx, especially in G and A, where billings grew sorry, where expense line grew less than billings in the first half. So quite some scale in the business model. So scale effects, we reinvested in line with our growth initiatives, clearly with the bias towards marketing, sales, but this year also around R and D, brand awareness took a boost from the successful launch of the Mercedes partnership in May, clearly reflected in marketing expenses doubling in the Q2, not only due to the marketing partnerships but generally more spent in the marketing area. This higher spend was due to other marketing measures to drive brand value and product penetration. Sales expenses up slightly in Q2 and H1. We clearly grew our global sales team by more than 20% and by nearly 50% over the last 12 months. So very significant investments, and they should now bear fruit in the second half of this year. These investments clearly go hand in hand in line with our ambitious growth plans. Taken together, sales and marketing comprise now around 28% of billings. I think it's still top notch and well below as a high growth peers in the software industry. We also continue to invest in innovation and R and D in our R and D hubs in Germany and Europe, R and D grew quite substantially by nearly 40%, driven by also some of the acquisitions, which was mainly R and D focused And we're investing a significant amount of additional R and D resources on our AR products and f design. But I think despite the significant investments, we maintained our high profitability in terms of EBITDA margins, 47% 55% for the first half. As I mentioned, bad debt, pretty much in line with our framework, slightly below 3%, very stable development there overall. Maybe outlook statement on the marketing expenses. We clearly now expect The marketing expenses will continue to build up. The partnerships will fully kick in. And therefore, we project adjusted EBITDA margin to bottom in Q3 before increasing again in Q4, but the full year projection is unchanged with 49% to 51% adjusted EBITDA margin in relation to full year billings. Let's take a look at cash flows. Pretax cash from operating activities was mainly impacted by circa €30,000,000 relating to the marketing partnerships, this is pretty much reflected in a similar increase in other assets in net working capital as you can see on the balance sheet. At the same time, cash flow benefited from a decrease in trade AR, lower CapEx and interest expenses. So all other operating metrics have actually improved. Despite an increase of the gross financial liabilities of €400,000,000 in Q1, we were able to decrease our interest expenses. So I think very good progress on the financing side. After tax lever, free cash flow to equity holders, now EUR 32,000,000 and that represents a cash conversion rate of 57 percent of adjusted EBITDA. I think on the next slide, it wraps up our overall liquidity position, which continues to be very strong. CapEx, bolt on acquisitions and interest payments comparably covered by operating cash flow and increased cash and therefore, our cash and cash equivalents increased by €28,000,000 in the second quarter. So I think overall, very comfortable position overall. Net financial liabilities have decreased by around euros 30,000,000 net leverage ratio down to 1.5. So clearly, that gives us all the flexibility and firepower to execute on our growth initiatives. Let me point out that currently, we have no plans to pay dividends as we clearly focus on our growth for this year and the years to come. And therefore, our guidance and revision remain unchanged. Now moving on to outlook. The COVID pandemic has clearly altered The demand trends in 2020, we saw a temporary spike in additional demand for home working solutions, resulting in extraordinary high growth, While very successfully retaining those customers, which we had won last year, they adjusted and downsized capacities. This onetime effect was larger than anticipated, and new billings in the 2nd quarter could not compensate for that, therefore, resulting in 9% reported and 22 constant currency growth in H1. And taking all of this into account, we are therefore guiding to the lower end of our initial 2021 outlook for billings and revenue. This is an ambitious yet achievable target as we expect our net retention rate to recover to 100% or slightly more by year end. We already saw in June a rebound of renewal values to normal levels as the down selling related to the lockdown cohort stopped in May. At the same time, we expect stable churn in up and cross sales into our large existing subscriber base to continue benefiting from further upgrades to our enterprise products, remote management solutions and continued traction in the AR space across the sectors. In addition, the like for like price increases, which we mentioned, they apply to broadly half of last year's annual recurring billings, will mostly come through late Q3 and Q4 when long standing subscribers have their renewals. And finally, the negative currency impact on NRR will also end as the sharp of the U. S. Dollar against the euro occurred in July 2020. So obviously, with the current FX rates, that headwind should disappear. And now the second key pillar for us is our new billings in the second half. The enterprise sales teams have built a strong pipeline of larger deals. We are looking to convert in second half. Previous deals, examples such as Siemens Healthineers or others demonstrate that we have extended our solutions portfolio with very relevant products around digitalization use cases, which means significant efficiency gain for our customers. In several cases, we have access to significant 7 digit deal sizes, which might be a true game changer for our enterprise expansion. And part of the strategy is to continuously grow our integrations and partnerships, like Oleg explained with the SAP partnership. This is clearly a major step forward here. I think having access to SAP's customer base and a clear joint go to market strategy with our AR Solutions portfolio it's clearly expected to give us near term fittings results before year end. But next to the enterprise, also the momentum in the other sales channels it's also strong as people especially new sales colleagues are back to the office now. And I think, as I mentioned, they will now all benefit from working directly with their more colleagues across all functions. I think seeing that vibe again in the offices is very good overall. I think having grown the sales teams by nearly 50%, this will give us the extra weight and punch, which we need to actually meet our full year targets. And finally, I think there's clearly significant momentum around the launch of the partnerships, resulting in significantly more visibility across all customer segments. Maybe on timing of the second half. As in Q2, we expect larger deals to be back end loaded in Q3 and Q4. Q4 will benefit from a very large renewal base, as you all know, throughout the quarter and enterprise buying towards year end as usual. But Q3 will rely more on post summer pipeline conversions to be started around September time frame. Therefore, Q4 growth is expected to exceed Q3 growth. This will also impact adjusted EEA margins. In Q3, we expect it to be around 40% and in Q4, around 60%. Therefore, full year guidance remains unchanged with an adjusted EBITDA in March between 49% 51% of full year billings. And this concludes the presentation now, and we can open it for Q and A. Thank you. We will now begin our question and answer session. Your first question is from George West, Morgan Stanley, your line is now open for you. Good morning, Oliver and Stefan. I have a few questions, please. Firstly, can you talk a little bit more about your level of confidence that this is a COVID cohort renewal issue you saw in the first half? I guess we have the volume churn statistics, which are helpful. But have you kind of segmented your customer base and looked into the renewal patterns of the customers who were not upsold last year or who were not net new customers. And when you look at that base of kind of non upsold customers, were their retention rates comparably stable on an ex FX basis. That's the first question. Secondly, you mentioned the rebound in renewal values in June towards normal levels. Perhaps not on an LTM basis, but on a cohort basis, was that renewal rate already back into the triple digits? And has that sustained into July? And just lastly on the Enterprise segment, what's the current level of Enterprise sales headcount? And can you talk a little bit more about your level of confidence in the pipeline into the second half and if there are any specific solutions driving that. Thank you. Sure. Let me start. Thanks, George. So as you can imagine, we did a significant amount of analysis on our churn behavior or subscribers' churn and the down sell, I think what we clearly found out is that this is not a churn topic, but clearly a the down sell topic across all geographies, as I mentioned. The churn, subscriber churn is stable, as you pointed out. But also, if we actually dive one level deeper and take a look at the various churn indicators on single licenses, for example, whether it's remote access business premium, they all have trended favorably, at least stable, if not slightly improving. So from that perspective, we are very comfortable that this down sell is a onetime effect by all what we see and also talking about July. This down sell is over. That was mainly in effect from March through the May period. Again, we didn't have that on the radar screen. Maybe we've been a bit overly optimistic But it's been a onetime downside effect. Underlying churn metrics by customer segment and by region, as I said, stable or actually slightly improving. And then maybe in terms of enterprise pipeline and what we see there and our staff generally, we've significantly expanded enterprise sales team. I think it's now around 100 people, give or take, yes. I would say that we have not been happy with the productivity the first or the last 6 months, frankly. Variety of reasons for that. I feel clearly on boarding it wasn't the easiest time for them joining a company with new products and new use cases and working remotely complete. That didn't help, Thank you. But now we've seen significant improvement towards the end of the quarter, but I think that's too early to make a consistent theme out of that. What's very good and pretty new is that the deal sizes which we are seeing in the pipeline have moved Significantly up, yes? We see a significant number of deals which are high digit or as well as double digit deals, I think that's new, mainly centered around augmented reality solutions, but also including some large Enterprise platform deals across entire companies. I think that's something new. Clearly, we need to close those deals. As you can imagine, the entire conversation is really very close to those sales processes. We would have hoped to close them, 1 or 2 of them already in Q2. That hasn't happened, but they are still very much alive. And I expect them to close either in the Q3, maybe or latest in Q4, but that will be a key pillar of our reacceleration of net new billings in the second half, yes. But those deals are for real, very close, very good customer interaction, very interesting and exciting use Okay. And now we need to close them. Can I just ask, what are the sales practices for the enterprise business at the moment? Is it still mostly Are people back on the road sort of dynamic there? No, they're back on the road again to a certain extent, yes. I mean, clearly, it's taking it slow. Even if we would like to visit them, some customers practices which doesn't allow for physical presences. But I think what's much more important is that we internally had the chance to get together and validate proofs and do live product demonstrations, sitting together in a room for a few days, educate our salespeople, See together with the marketing guys, see together with the product management guys. So I think that all didn't take place or it took only place in a virtual environment. I think especially if you're a new sales guy covering new products, which the TIMEO has recently acquired, that's just not the best background, so to say, I think that has changed during June and especially July time frame. Perfect. I'm sorry, just one more time. On the renewal values, I guess, If you're saying you ended the year, we expect to get back to 100%, that would imply in the second half specifically your retention rate it's probably a little bit over 100%. Is that supported by June or even July so far? Definitely by June, yes. July is always 1st start in the month is always a bit different dynamic, frankly, but definitely supported by Jounia. And yes, I think the biggest impact, again, which drove NRR down is the down sell that has clearly disappeared and the FX headwinds. And based on how the FX rates are right now, That has also disappeared, right? Perfect. Thank you very much. Thank you very much. Now you gave us margin expectations for Q3 and Q4. Can you also give us a sense of billings Growth ranges for those quarters? And maybe just a little bit more about how July is trending? And then the kind of seasonality For the enterprise business, are you expecting this to be quite heavily Q4 weighted, kind of matching the enterprise software market? Maybe with regards to Q3 and Q4, look, I think Q3 is especially for the enterprises, only a few weeks of effective sales and pipeline conversions, yes, while it's obviously going into Q4, customers and our sales people, they know this is the most important quarter. So I would expect Q4 to be substantially above Q3 growth rates, if I put it like that, probably too tough to give precise percentage growth numbers, but there should be a significant margin between those two quarters in terms of growth rates. Generally, in terms of seasonality on our business, clearly now post COVID, Q1 and Q4 have significant renewal cohorts and renewal amounts and then followed probably by Q2 Q2 and Q3 is always the slowest quarter, yes, in terms of billings contribution overall. Clearly, this year, I think our growth initiatives are very much biased towards the enterprise business and therefore more back end loaded. Clearly, enterprise is a key pillar also in the future years, And maybe it will continue to be back end loaded. But clearly, we expand our business, we expand salespeople, we release new products. And that always happens, obviously, during the year and therefore, you should see a sequential growth and that means Q4 should always be one of the strongest quarters. But you are still sticking to the over 20% for the second half for each individual quarter. Is that right? Yes, clearly, we need to also 20% in the Q3 to get to full year, I would say. Yes. Okay. And then sorry, second question, just looking at the potential in AR Sorry, one important point is getting out. Those 7 digit deals, I mean, they have a significant impact on our overall billings numbers, right? And if you close 1 of those or 2 of those deals, it contributes a couple of percentage points and that obviously means it has some lumpiness on our overall billings as we move more forcefully into the enterprise business. Sure. Yes, that makes sense. Just a second question, I was looking at the potential in AR. What would you say Frontline is as a percentage of billings today? Where do you expect that to go? And is it typically a cross sell into the Tensor installed base? Or is it more of a stand alone sale? Right now, I think it's between 2% and 3%. They had a very good conversion actually at the end of Q2. I think clearly the 1st couple of months, generally speaking, the enterprise sales team had a tougher time, frankly. They focus much more on getting to know the product, the new use cases and so forth and building pipeline, but conversion of the pipeline was good towards quarter end. And sorry, the second part of the question was? You versus Crosshair. So it's both. We do have the opportunity to present augmented reality to existing customers. They then typically start a proof of concept paid proof of concept to have a test installation, which then in the past experience of Ubimax very often converted. The Customers then like the solution. But there's also entirely new customers, which are just or came through being interested in augmented reality, so it's the new flow, so to say. So we have both. And of course, in a few weeks' time, we will also add to that the partnership with SAP is a channel of inflow for needs and opportunities in this space. So generally speaking, I think the AR environment Something we are, SAP looks to do it quite interesting to me, also Microsoft and others. So that's a very interesting And therefore, we also get entirely new leads of customers, which we haven't worked with before. Thank you. The next question is by Mohammad Mualawala, Goldman Sachs. The line is now open for you. Great. Thank you very much. Good morning, Oliver, and thanks for taking my questions. I had 2. The first one is just around the over 100% net renewal rate that you sort of anticipate in the second half to kind of get to your kind of annual expectation. Given your expectation of kind of stable churn, can you perhaps walk us through the different dynamics across SMB kind of upselling, but also clearly you're now realizing that or you're expecting a lot bigger contribution in enterprise. What are the kind of the building blocks around that? And then secondly, on Bryce, I mean, you talked about sort of 6 figure and 7 figure deals. I mean, we've seen a lot of software companies talk about larger deals closing perhaps a bit more Earlier in the year versus Q4. So I'm curious to get your commentary around that kind of visibility around sort of sales cycles And to what degree some of these could close in Q3 rather than Q4 and Whether you have any sort of control around the closure of those deals or like last year, it's going to be much more kind of back end loaded? Thank you. Sure. Maybe on NRR, reported NRR is 95% now. 2 major impacts here, FX Reduced NRR by 3 percentage points. So stripping that away, it would have been at 98%. I think now as we enter H2, it will be more like for like. So that it means we are already close to 100%, all things being equal. Then most important was the down sell impact On our NRR that reduced the net retention rate by 4 percentage points, give or take, yes? And so if you take away those two impacts, the FX and the down sell NRR would have been north of 100%. So frankly, it doesn't take a whole lot to get NRR back to 100% again. I think clearly FX, obviously, we can't influence. Down sell from all what we've seen has disappeared, Yes. And now it's more like the usual up and cross sell. And that should get us back to 100% already in hopefully in And then clearly in Q4, coupled with the price increases. But for me, it's more like really those 2 impacted downsell, Which reduced it quite substantially. That has pretty much disappeared now and the FX impact. Then maybe on enterprise and sales cycles, it's a good question. Maybe different by region. I think in the U. S, we have significantly strengthened now our enterprise muscle and DNA over the last couple of weeks months, a, by more and better hires in the enterprise segment over the last few months. Also, we made the acquisition of You're right. I mean, they were used to sell into large enterprises, Boeing and a few others. Average ticket size already being significantly higher. And they obviously are And they obviously are very familiar with OT environments, right? And I think that's something which we let to a certain extent in the U. S. Now we see those deals. Some of them have been in the pipeline since a while. Yes, so it's not necessarily deals which showed up a We have a couple of weeks, but already been in the pipeline for a few quarters. Progressing, yes, we are close to decision points already in Q2, 2 now being live again, reactivated, and I would expect them to close in certainly in Q4. Q3, let's see. As I said at the beginning, I think September of well, Q3 generally is just a very short quarter for the enterprise team because vacation time and whatnot and then sales cycles on top of that means they could fall probably into Q4, but let's see. Also, I think it's important because you're asking more the ability to pull forward. I think most of these enterprise projects are new digitalization projects. So customer needs to walk through proper installation, proper testing and also proper purchasing cycle, Procurement cycle. So it's not that this is a, call it, an ERP installation, which is running anyway and then you discuss the new multiyear deal. And whether you discuss it in Q3 or Q4 is a little bit at our discretion. That's not the characteristic of our project and hence There's only so much we can influence that. And certainly, the summer quarter, as Stephan said, is not the greatest quarter for new projects. But still, we strong pipelines globally. We have the people on board, significant number of people on board now that can lean into this, And we will do as much as we can in Q3 already, of course, to de risk, but Q4 will be the biggest piece. Got it. Got it. And if I could just squeeze one more in. Obviously, there are a lot of gating factors this year, kind of post pandemic. But as we look to maybe next year and kind of ramp to your kind of mid term ambitions, clearly, it sounds like you probably are expecting this sort of It sounds like on the enterprise side, your kind of confidence is building. Can you maybe just walk us through the kind of the building blocks of the bridge around that sort of $1,000,000,000 of billings that you've reiterated in 2023, Where is the kind of the incremental confidence coming from? Look, I think that hasn't really changed clearly in the 1st 6 months, we had tougher times than expected, but it was mainly one time effect. Frankly, I think we've been a bit overly optimistic on the retention and the retention value of our COVID cohorts and clearly, I think 2020 also under normalized non COVID environment, I think our enterprise pipeline conversion also the SMB segment performed extremely strong. So I think the 1st 6 months was much tougher fight than expected, but that that can change and all our confidence in our €1,000,000,000 billings goal in 2.5 years out, yes? I think we clearly have what it takes. We have a significantly expanded solutions portfolio. We have the subscriber base, frankly, yes, and there's so much headroom to grow in that subscriber base. And I think those are, from my perspective, the key pillars is the solutions portfolio and the subscriber base to get us to the EUR 1,000,000,000. And also a better regional and go to market place, quite frankly. I think given COVID situation now over the last almost 12 months, I think the physical go to market, people talking to people, had difficulties clearly. We're also building a better, Broader marketing organization, now with Liza, Gona being on board and also driving the different functions in the different regions. So that was always very much focused on Europe naturally and then the U. S. To some extent, but the global marketing organization that drives demand generation across the globe needs to be built up, so there's a lot of movement there. The quality improvement also and the stronger enterprise focus in the Americas, if you remember, we were running out of one office for a long while, Tampa, Florida, really not the space where you are closest to enterprise customers across the U. S. And now we have offices in Austin, we have offices in Atlanta and an It's outside of Washington plus Tampa. So we really breadth our organizations more. We have more people now. We can also lead those people more. That will drive enterprise, that will drive operations, use cases also more in the U. S. And then last but not least, APAC, Some construction site, as Stefan mentioned, in China and also getting Japan back on growth track after they grew 112% last year or so. So there's a normalization effect there as well. So many of these things need to get into the normal flow that we have seen at the end of last year and before the COVID crisis. So that would be a much more balanced business development going forward to contribute to the growth, which we have always achieved before. Okay, that's great. Thank you very much. Our next question is by James Goodman, Barclays. The line is now also opened for you. Good morning. Thank you very much. Firstly, just on the renewal point, maybe you can help me with one thing I'm just not clear on, which is if we look at the specific quarterly drop in net renewal into Q2, which as you very clearly outlined due to the COVID cohort, the down sell. Can you just help me with the Q1 to Q2 dynamic? Why didn't we see a similar effect of the same magnitude last quarter given that was a sort of a bigger COVID cohort. So just so I can reconcile that. And related to that, maybe you can make a comment on the remote access product, which you called out on the slide. Seems like it's getting some good demand, but is there any tension there in terms of maybe some customers at the lower SMB end adopting that product when maybe they otherwise would Taken the core product or something of that sort of effect. And maybe just then separately, I think you've talked in the past about Net Promoter Score. You talked in the presentation about customer feedback and its importance on the product functionality. But any comment you can make in terms of where currently your sort of net promoter score is, how you're thinking about the feedback across the customer base more generally across everything from sort of free to pay conversion through to contracting and product capacity. Thank you. Sure. Let me start with the first two questions. On the renewals on net retention rates, the way how I see this, really I take a look at Q1, Q2 combined, frankly, because there was so much noise around quarter end with pull forwards and Significantly engaging with the COVID customers, whether this March, April or May time frame was kind of irrelevant, yes? So the way how we see this is really one period, so to say, and that was like 95% for the last 6 months combined. I think I mentioned at the end of Q1, and there was also my tonality around Q1 is that we dearly saw that the down sell is more Or it's higher than we anticipated, and I hinted towards a lower net retention rate in the mid-90s, and that's exactly what happened. Q2, I think, was now net retention rate of high-80s, a little bit of pull forward into Q1, as I've explained, but generally normalized towards the end of the quarter. And from my perspective, it was really like around 95% for the 1st 6 months. And that's, as I said, FX, 3 percentage points and 4, 5 percentage points down sell. That's the The key drivers there. Remote access, I think we need to put that in perspective. Overall, that contributes only a few percentage points to overall billings. I think we launched it both like in 2018 really as the entry version really also to monetize customers during free to pay campaign, effectively competing against other low end competitors. But in the overall scheme of things, it's 2, 3 percentage points of all billings, not more than that. What we've seen there is same dynamics. Churn, as Oliver mentioned, it's high 10s, low 20s. That has flattened or actually improved slightly as well. But frankly, remote access will remain the entry version, working from home solution for single users. You will always see some higher churn there, but it's good to see that the churn has not decreased, in fact, did a slight improvement. Specifically, I think you were asking also cannibalization. Is that dragging people away from the business solution product, typically not. So in markets where we had this product, we were adding, we were nicely growing. I mean, that analysis we did already before COVID, of course, COVID maybe changed some of the dynamics there. But generally, market by market, that was the effect. Of course, there is people who are now buying the Remote Access product you would have otherwise bought the business license to a smaller extent or smaller cannibalization. But that is quite frankly, good cannibalization because if you're just an individual user, you want to connect and work from home, you should have the remote access product. Otherwise, you would have a broader product overpay and I think long term that's not that's also not a good strategy. So therefore, I think for the personal use, that's actually quite a good product. And then maybe going over to NPS across the base, of course, we look at NPS. We do NPS, we do surveys, post service call surveys. We're also going to have sales calls, sales call surveys, we measure NPS, NPS value differs by region, of course. Generally, we now add Last numbers we've seen 40. Yes, and to 40 something global view. And So actively trying to improve the whole process. I think the 1 the 2 biggest drivers, I I mean, if you take away like low availability of our sales force, if we have peak times, which we had last year, or any other kind of operational hiccup on the CSAT piece. The two drivers, which we always need to watch is free to pay conversion, as you know, when customers are asked to buy a license and they don't like it. And secondly, it's the auto renewals that we auto renewal practices in some markets, this is still absolutely common to have an auto renewal in some markets. We had to go away from it. Other markets, we need to remind customers properly. So there's constant readjustment going on to be in the proper place there And these are the 2 drivers that we're focused on. And then of course, we have app usage, app ratings and the likes and the likes, We also are quite actively in trying to make sure we have surveys and we get ratings from customers that like our product. I think our key key issue in this respect is one of the key issues is that a large free user base rating us and commenting about something which is more frustrating to them maybe when they need to buy a license, which is not the intrinsic satisfaction with our service, our product, And of course, balancing these two inputs is quite important. If you look at G2, we saw very well they have a very strong filter in asking subscribers to rate the product and not all free users. Last pilot is different, but we're also working to improve that process. That's helpful. Thank you. Appreciate it. Our next question is by Gianmarco Conte, Deutsche Bank. The line is now open for you. Hi, Oliver. Hi, Stefan. Thank you very much for my question. So I actually have a couple as well. The first one is, from my understanding of the SAP partnership, that Ubimax is now integrated with SAP's Asset and Management Solutions. So could you just kind of explain to me how much value add do you expect from this partnership in tangible terms? Like if you could provide the concrete example, That will be great. And this was like the timings that you expect to re benefit from it. And the second one is in relation to are you already seeing like some activation from the F1 events? Are you able in some countries to showcase will your local sales force to potential CEOs some use cases at these events itself? I'm just trying to understand whether there is some level of sales activation from the recent F1 events. And then yes, I'll take another one after this. Thanks. Yes. So SAP partnership, what is the value add? If if you think about a typical SAP customer, ERP system, finance system, HR system, product management system, often in industrial, so the whole Path flow is modeled or in the SAP system. If you then take the other side of the operations, which for example, the warehouse where people are working, Picking parts and putting it together, commissioning parcels, then there's an obvious link that whatever is the picking flow is linked to the SAP system. When you have a manufacturing situation, then whatever part is mounted or assembled. There's an obvious link to the SAP system. So if you have an end to end solution, you can you have access to all cycle times, movement data, timing data, quality data And picking levels or inventory levels directly from the person, so from the glass or that happens that the person is wearing into the back end system of ERP. And that's what some of the customers have already kind of built by themselves. But the big value add is that we now go to market together. So the customer is getting it out of one hand, so to say, or 2 hands, but in a joint sales approach versus needing to build something on their own. And that's a very strong value add for customers, when will this impact? I mean, we're going to launch it technically in a few weeks' time. And then we need to see how hot, so to say, the initial leads that we have on the pipeline are we have significant leads already. Whether this is a Q3 conversion game, I doubt it. That's too fast for these type of projects. But Q4, we could see a nice contribution there. I mean, SAP is very eager to market showcase this as soon as possible and to what we And it's nothing which is, call it, which is totally new and a new solution that you need to present. It's obvious proposition to customers to say here is SAP, here is frontline AR extension that can go together now. And I think therefore, we believe there can be significant impact already this year. Formula 1, so what's happening there? We have the first few rated. Hospitality starts to work. Monaco was an internal launch. Baku, we Didn't do anything, but since then we brought customers to Formula 1 and Formula E races. Currently, honestly, it's relationship building, there is no way at the moment or hasn't been any way to showcase solutions really. A, we want to build more solutions together, But also, you cannot really bring customers to the pit lane, to the garage. That's not possible yet. Also the factory wasn't accessible yet. So this year from that perspective is a little bit difficult. But we're working with Mercedes on codifying this use case is creating the marketing collateral to be able to talk about and show around more of it. Again, that's also a topic for the remainder of the year, towards, I would say, later in the year. And then with the Formula E season start for next season, I think we will see more of that. So currently, it's brand building, awareness, it's hospitality and the concrete use cases that we can show will follow soon. Right. Okay. So just a follow-up and then I have another one. So are you expecting then over the next couple of F1 events to still not have to still not be able to showcase anything to customers? And you mentioned you're working with Mercedes to codify these use cases. Could you show a bit more color on that? Like how exactly are you doing that? I'm just curious to see whether you're actually making use of some sales force there. Or is it just like this is currently a standby, we can't really do much because of the restrictions and depending on where the event is and so on and so forth. And just the final one for me is, I noticed on the ACV for enterprise, there was quite a spike in the number for ACV over 200,000. Was the result of the large contract won at the end of June, like what is driving the absolute increase in ACV for your enterprise customers? I'm just curious if that's a one off effect or is that just stronger demand from Gen and the enterprise billings? So I'll take the F1 first. I would say it's the middle of what you described. It's not that we can't do anything, but we have to work around COVID restrictions. So, completely that means, we are in discussions with Mercedes, both Formula 1 and Formula E, to create marketing materials around existing use cases, so remote control of devices And remote control of IT equipment, which they have. That will take a while to get that done, but that's the easier piece. And then of course, newer use cases, where they will use more of the augmented reality piece in the factory and in the pit lane, that is some months to go, and we need to see how speedy we can be on this one. This season clearly, it's a tough season. We only started in May, so latecomers, very late Formula E and Blade II Formula 1, it was always clear that it's a bit restricted and that's also reflected in The pricing structure for the season, but there is stuff that will happen throughout the year. Maybe an enterprise ACV spike, Nothing special. I think it was just really good execution across our installed base with a couple of nice wins in the 100 ks 200 ks 300 ks 300 ks range, Yes. With existing customers as well as new customers. And that's much more like we want those customers, especially in the asset scenarios, one of those customers maybe a year or 2 years ago, and now we are moving them up to significantly higher ASPs, and that's what we see in the pipeline, right? Maybe you start with a POC of 10, 15, 20 ks, but then suddenly you have a ticket size of 150, 200 ks and some of those deals which we have now closed And that led to that nice shift in our enterprise. It's just testament from my perspective that we are successfully moving Expanding into the Enterprise segment and that we have the products and solutions to get there. Yes. Maybe one anecdote for those of you who have been around in the at the IPO time. At the time, we had won this first at the time largest deal in the Americas, €80,000 And the question at the time was, well, how where can this go? How does this move? This customer is still with us. It's now sitting at almost €300,000 more than €300,000 so a little bit lower than €300,000 to move additional use of the product in various areas and more capacity needs. So nice example of how these customers are basically growing in capacity over And that's within 2 years, if that could be the second renewal we saw then. Question is by Gustaf Wohberg, Berenberg. The line is now open for you. Thank you very much, everyone. I have 2, please. Just first, could you maybe talk a little bit more just about the contribution to growth in the quarter, maybe Q1 and maybe also Q2 actually Sorry, I'll be wrong. Just coming from augmented reality versus the core business, so how much of billings growth is actually coming From the AR solutions that you bought last year and then how much is core? And then could you maybe also talk a little bit more about the trend in monthly active users On the platform, just what you're seeing kind of H2 last year versus H1 this year? Yes. Let me hi, Gustaf. AR growth clearly outpacing the remaining growth of the core business as it should be, frankly. I think we had plans that this business should go in the 40%, 50% range maybe in Q1, a bit of a slower start given that this was a new product which we exposed to lots of new salespeople, so to say. But then at the end or middle of Q2, it's significantly accelerated. Overall, we probably have achieved that growth rate in the Q2, so nice uptick and now also the pipeline actually, especially the larger deals are very much focused on those use cases as is the SAP partnership, right? So from my perspective, maybe a little bit of a slower start in the first couple of weeks months, but then significantly accelerating. And I'd be very confident that this business will be a significant accelerator to overall billings growth. Of course, it is growing very nicely and repositioning in the enterprise pipeline, absolutely. But Of course, if you take the overall business, the contribution to overall growth, it's still relatively small. As Enterprise is now sizable, growing nicely, but it's by now also a smaller part of the business And then the AR piece, and this is even smaller part. So that also shows you there's a way to go and significant potential going forward. But it also shows that the growth on top of the very, very strong cohort last year has generated by the core business across all regions. So it's an incredibly strong and robust growth trajectory that we have there. And the AR piece, the enterprise piece is built there on top of it. Second question, I think, was users on the platform. Probably talking about free users or can you what exactly do you mean? Yes, exactly. Just generally kind of pre users, but also your subscribers, are they using the software as much as they were on the last year? And then I'm particularly interested in H2 because obviously, H1 last year was it's special. So clearly, we saw a spike, right, in the platform usage in active devices given the pandemic, then we have started to monetize, some of them starting in the second half of twenty twenty, then pausing it in Q4 again, starting in Q1 and Q2, so now it's at more normalized levels again. Now we have stopped campaigning again in the Q3. And therefore, from my perspective, it's pretty much unchanged picture. Yes. And then generally usage of the 3 users, I think the peak was last year, as Stefan just said. We have been more restricted restrictive in free user management in some markets that typically drive Can drive an enormous amount of free usage. So specifically, that's China, India and some other Southeast Asian markets. We have increased especially in China, we have increased the scrutiny level of allowing people to use our free you have to have an account, you have to have in China, even a mobile phone number, because we wanted to take all the kind of broad usage and machine usage out of the system, because it's kind of high free user numbers that can never be monetized, don't help. And it's also Putting load on the infrastructure and also not fair compared to paying customers, so we have been more restrictive there. And that has reduced the number of free users in some large geographies. And the picture you see is, I would say, slightly condensed after COVID is slightly condensed for user base, but higher quality for user base, which also allows monetization and has allowed monetization. Super. Thanks. The next question is by Ben Castillo Bernouz, Exane BNP Paribas. Your line is now open for you. Thanks very much for taking my question. Just more broadly, clearly, the enterprise momentum is strong. The SMB part is still majority of billing. So can you just help us with what's going on there? What the growth rates you are seeing of your own business? What you think the market is growing at in the SMB space for remote access? What are you seeing competitively? What's changed? And what degree you have price and power? All those elements will be helpful. And then if you have to come back on that sort of freemium model that number of free users, can you give us what your penetration is in terms of the 620,000 paying subscribers as a kind of rough estimate of your total user base. Just trying to get an idea of how much headroom you have there to continue to monetize. Thanks very much. So let's start with the ecosystem, maybe first of all, So 600,000 subscribers, I think the way how we see it is that we still have the same potential to monetize around euros 20,000,000 on a yearly basis of free users. I think that hasn't really changed. I think we're a good path in 2021 as well. But obviously, if you put that in the overall context, it's becoming less and less meaningful, right? A couple of years ago, that was 10%, 15% or more of our new billings and now it's substantially less. So I think that's from my overall perspective becoming a less meaningful number. The penetration rate, obviously, is still a significant headroom because most of our connections are from free users, right? I mean, we have 1000000, 100 of millions of devices, which are free devices, which are not part or attached to a subscription converter, there's still significant headroom. How much of them you can monetize? Tough to say, as I think from as I said from my perspective, we are happy with the €20,000,000 monetization goal on a yearly basis. That's what we are working towards. And keeping the funnel relatively stable inflow of new users and then monetizing part of that and making sure that the user base is vibrant. But there's a general trend, I would say, in the industry to be more restrictive on free usage for security reasons as well. I think quite some companies, smaller companies are using free version for business purposes, which is ultimately not the right thing, independent of any commercial consideration, but also I think from a security consideration, there should be an account. You should know what this customer is. You shouldn't let these customers just brief floating, we use your network without any ability to find them, if there's Bad connection, bad actor. I think the whole industry has gotten more scrutinized on the premium products, maybe not at the lower end, but on the premium product. That's absolutely what our enterprise customers are also asking for. You need to watch the time a little bit. So your other question on Dynamics SMB, what's going on there? I would say it's really like if you go back 2 years in time, I think the market studies On IT, connectivity, SMB, this all didn't look very interesting maybe from a growth rate perspective. I think what we see is constantly over the last years, we are defying gravity there. We grow in all product segments. We grow in all regions. We grow in our most mature markets. We are able to up and cross sell into the subscriber base. We also, as you know, we told you about the renewal price increase of a few percentage points. We do have The pricing power, are we losing few subscribers to competition at the low end? Yes, definitely. We see that in churn In the low end share numbers, but generally speaking, we are very happy, very happy with the robustness of our core user base the upsell and cross sell parts that we see typically customers who like the product consume more over time. For years, we did good cohort analysis of how customers grow the ACV with us, the one step day after year 1. I think that's a constant development. So we feel very good about the dynamic there. That's not to say that we had a few missteps in some markets maybe and didn't get it fully right in some of our growth markets like in APAC. But generally speaking, it's a very, very, very good and healthy part of the business at low acquisition cost and high efficiency. Thank you. Thank you. The next question is by Victor Cheng, Bank of America. The line is now open for you. Hello, everyone. Hi, Stefan. Just one question from my side. Some of the enterprise view examples that you have provided, how many of those are greenfield opportunities and maybe particularly those around AHAR? And then how many of Others are more about display's existing products. And if so, what are they? What was the competitive dynamics Around that front? Thank you. Sure. The vast majority of those deals are greenfield, frankly. It's not competitive, especially in the AR space, Yes. ARS is almost all greenfield. And on the Tensor platform product, I would say that at least 70%, 70%, 80% or so is without competition, but it's really the question is how much will the customer digitalize? How much remote work will be done with an external party? And very rarely we do a lift off of like say LogMeIn, BeyondTrust or anybody else. All right. Thank you. Thank you, Victor. So thank you very much for your attendance. If there are any follow-up questions, for long questions, please reach out to the IR team.