Earnings Call: Q3 2020

Nov 10, 2020

Dear, ladies and gentlemen, welcome to the TeamViewer Conference Call After the presentation, there will be an opportunity to ask questions. May I now hand you over to Carsten Kelleher, Head of Investor Relations and Capital Markets. Thank you very much. Good morning and good afternoon, and welcome to the TeamViewer Q3 2020 results call. Before we start, as always, I'd like to remind you of a note on the forward looking statements that you can find on this page of the presentation. And with that, I'd like to hand over to our CEO, Oliver Steiff. Thank you, Carsten. Good afternoon to all of you. Thanks for joining. Yes, as always, before Stefan is going to present the financials in detail, I will go will take you through our highlights of the quarter, which you can see on the slide. So Q3, clearly, we've built upon an extremely successful first half year and continue to grow very strongly and also profitably across all regions and all customer segments. And I think 1 year after our IPO, we can really say that we have overachieved our growth targets that we've set at the IPO and communicated to you. Specifically, Q3 billings increased by 29% year over year and actually 34% on a constant currency basis. In combination with H1, which was very strong and which was also less impacted by FX headwinds, but had a significant pandemic related extra demand in March April, as you remember. Billings are actually up 48% year to date, year over year on a reported basis and 50% even at constant currency. And as you also know, we have a very efficient financial model. So accordingly, our adjusted EBITDA grew as well even more, 58% year over year growth, 61% at constant currencies for the 1st 9 months, resulting in 57% margin for this period. Stefan will, of course, provide you with much more details on the financials later in the presentation. But I think it's important to note that we are seeing very good, very balanced contribution from all growth initiatives. And we are actually very pleased to see that the platform continues to grow. For example, a couple of days ago, we had a the installation passed the mark of €2,500,000,000 which really shows our leadership in connectivity as the basis for monetization in future. And as the ecosystem grows, we are also steadily attracting new subscribers across all customer segments really. We did expand our enterprise footprint even further, which was important for us, an important growth initiative. And we're also increasing the demand for higher value add strategic solutions, low workflow redesign, business processes and the likes. I think a very interesting area in this respect was augmented reality and IoT, where we see very exciting dynamics. And I think the Ubimax acquisition has actually paved the way to go into these segments even more and grow from that as well. We did less than 6 weeks after the announcement, We actually closed the transaction in August, so very smooth process. And thereby, we completed the first strategic acquisition in TeamViewer's history, so also very important milestone that happened in Q3. Besides all the organic performance, the market trends, everything that was going on around us. I think it's quite remarkable that we also did that during this time frame. And we believe that we are progressing very well with integration. I'm going to cover that a bit later. And we also see that customers are excited. So there is some early traction on some cross selling initiatives as well where sales forces from both companies approach customers together and talk about these new solutions. What we also did during the Q1, we continued to work on integrations, integrations with major software partners. I think most notably in this quarter, we finalized the integration of TeamViewer into Microsoft Teams, which basically allows Teams users to move from a video collaboration session into an augmented reality support session. So enriching the collaboration and the interaction with augmented reality features that come from our product. And clearly, needless to say, with 115,000,000 or so daily users, Microsoft Teams is, of course, one of the go to products for video collaboration and therefore integrating with them and allowing users to combine both user experiences drives our brand awareness, and it's clearly also expanding our use cases in our portfolio. What we've also done, we've now integrated our AR solution fully in to our Tensor platform. As we remember, Tensor is our product for enterprises, which comes with very different much, much more serious security features, single sign on, conditional access and the likes and the likes. And pilot, the augmented reality product was a product which was on the site. And now we've integrated that into one Tenza platform, which, of course, makes it much easier to use these functionalities also for enterprise customers. We also just relaunched Tensor to include some more functionalities, I think most notably co browsing, very important because we have more and more customers that actually need or use TeamViewertensure to support their customers while these customers using company apps. And in order to do so in a fully GDPR compliant way, you have to provide for a co browsing functionality, and that's what we built in Tensor as well. So a lot was going on, on AR, enterprise, tensor IoT developments, which clearly underlines how dedicated we are to this segment. And the reason for that is and also the result for that is our continued traction that we see in the enterprise segments, which you can see on the slide now. So during the summer quarter, we have won additional 144 subscribers with an annual contract value of at least €10,000 per annum or more. There's actually twice as many as last year. Including Ubimax, we increased the number of enterprise customers by more than 200 actually, which corresponds to an extended customer base of more than 180% since September 2019. So very remarkable development. And if you as you recall, we put out this KPI because we know that for deals above €10,000 it actually means that across several go to markets, so enterprise, inside sales, reseller, Inside sales people and resellers can sell these products, and therefore, we like the fact that we have a more higher value product in this customer segment. The other side of this enterprise development is always the largest deals. And therefore, we consistently report the accumulated volume of our top 50 deals on an LTM basis. And despite longer sales cycles for larger enterprises deals this year, which we noted before, We increased the deal volume to €6,400,000 organically and €7,700,000 if we include the contribution from Uweemax. And just to give you an idea, so while in 2019, the top 50 contracts, so these top 50 deals that we're mentioning here, in 2019, they ranged between €36,300,000 So that was the bandwidth, so to say. This range now sits at 80 ks for the lowest deal and 5 well above 500,000 for the biggest deal, which we mentioned before. So we really we're moving upwards with the top deals. We have more a larger base of the, call it, midsized deals above 10 ks. And that's the reason why we keep investing into this area because it's a very healthy development for us. What's driving this development? As always, I'd like to give you an idea of the deals of the last quarter. Here is the list. Again, we were able to close a good amount of large attendance tickets, especially this time in the Americas with customers across various sectors, which also diversifying our sector exposure, which is good. So it's really horizontal. We have an increasing number of clients that also added pilots to the deployment to extend the idea of support and remote maintenance and work really beyond into the operational work and use augmented reality solutions. Clearly, that drives down cost and reduces downtime, but also in some places, it was just basically just needed because of the corona situation. So you see here, you see some frontline licenses, which is the old Ubimax world. You see Tensor, which is the old TeamView world. And you see pilot in some of them across all segments. And the strategy is typically around 50 ks. As I said before, in the Q3, we had very nice contribution from the Americas. EMEA, still a bit slower, clearly fully summer quarter. But overall, we're very pleased with the development in Myanmar as well, and that continues into the Q4. So we're actually also very happy with how the October started in this. Maybe if you want to look at some use cases from this list in order to give you an idea. So we have, for example, there's a U. S. Client in the publishing sector already using TeamViewer Tensor for internal IT support, and they have requested a comprehensive working from home setup for their design teams. They have tried certain other solutions, which haven't been reliable during high data traffic and also were lacking compatibility with macOS. So with TeamViewer, they were able to easily establish high performance remote working solution into their already existing Tensor installation, benefiting from high security standards through single sign on, as I mentioned, integration into Microsoft Intune ServiceNow, which was an additional plus. So quite often, we see that the basic functionality, the added security from TeamViewer and then the integrations with other companies is the package that customer want. So that's the tender side of things. In addition, we also had some key frontline deals. For example, you can find a couple of those at the top of the list. One example is a German large German logistics company. They have decided to roll out Frontline internationally. They have ordered the XPIC, how it's called, solution for their U. S. Operations. And how that works is, IXPIG has AR features, and they can use handheld scanners or the handheld scanners that they're using are then replaced by glasses, smart glasses. That allows the worker to scan barcodes hands free by just looking at the barcode. So they have glasses, they look at the barcode, it's scanned. And of course, that makes the whole workflow much easier than using handheld devices. And at the same time, in those classes, workers have all the necessary process information displayed. So much easier to guide them through the picking, all hands free, improves productivity, as you can imagine, and also reduces error rates. So a very interesting application for digital warehouse operations based on Frontline. Another Frontline deal that you see on the list is a U. S. Industrial customer. They didn't go for X Pick, which is a logistics solution, but for X Assist, which is a support solution as well. Again, augmented reality, and they use it in their plants to give workers technical instruction via smart glasses to perform their service task. So it's really like an instruction in front of the workers' eyes to make sure they know which operation to perform. And of course, also ensure quality and collect data of the form task. So these are just a few examples where customers around the world would use TeamViewerUBMAX solution to digitalize really all kinds of processes in all functional areas of an organization and really across all verticals. So interesting to see that we're able to really address very, very many use cases now. And of course, all of that is built on innovation, product improvements as we go along, learning from our customers, adding functionality and making it broader and feature rich and also more secure. If we talk about the Ubimax integration, so it was very important for us to expand our knowledge in business processes, in industrial IoT, variable IT through the acquisition that we did this summer, really a key milestone. I think we're pleased to say that less than 6 weeks after the announcement, the transaction had already closed, and we are consolidating the business since the 1st September. And we are also very happy that all integration work streams are really progressing very well. I think the key to this is the fit of the 2 companies, the cultural fit and also the product solution fit and the strategic the shared strategic vision behind these two companies. So we now have completed Phase 1. The frontline platform is now fully added to the TeamViewer Solutions portfolio. As you can also see, for example, in Germany, you see it on the website. And in other markets, the integration is happening. And of course, TeamViewer solution sorry, frontline solution portfolio is now also powered by This acquisition not only gave us an additional verticalized product suite with very high stickiness, But the other thing is that we acquired really market leading experts in augmented reality, and that is also facilitating a much deeper integration with our IoT offerings. So we're taking the AR piece and the IoT piece. The AR piece of Ubimax being very dedicated to workers, to humans and the IoT offering of TeamViewer being dedicated to things really, we are integrating that much more. And we already have a few proof of concept projects where we bring these two sites together and work with customers to really have an end to end digital process around this. Day 3, of course, will be then the integration the platform integration of the 2 solutions. We have R and D groups in both companies, mostly based in Germany. They work together very closely already now to develop a joint platform. UBMX is often in its functionality more web based. TeamViewer is a proprietary connectivity architecture. Bringing those 2 pieces together makes it very, very attractive because we can connect to any device anywhere, any operating system, and we can put additional features, functionalities on top of that, which makes the solutions meet much, much broader. So it's very exciting to see how these teams come together. Again, culture plays an important role. We have the founders team of Ubimax in our senior leadership team work together very, very closely as much as possible during corona times, and we're progressing very well. Of course, immediate billings contribution from Ubimax in Q3 has been small, but we believe it has a very positive impact on our enterprise customer base. And I think it's already visible how we can have future deals and embed ourselves more deeply into customers. Now before I hand over to Stefan, to elaborate on the financials, I would like to take the opportunity to reflect a bit on what we've achieved since our IPO, September 29, almost exactly 1 year ago. A lot has happened clearly. When we had the IPO, we were still celebrating with more than 300 people very close to each other in the Frankfurt Stock Exchange, so really a milestone of the company. Hard to imagine now how that's worked now that we all still continue to work from home in most of our offices and are in partial lockdown again. But over the last year, I think we can really proudly say that we have clearly over delivered on the strategy and also on our targets that we've laid out at our IPO. And this is really true for all three pillars of our growth strategy. Remember, customer segment expansion, use case expansion and really regional expansion. So if we start with customer segment expansion, you've seen number of enterprise customers have almost tripled. We have 2,500,000 installations of our devices globally. Subscriber growth has significantly accelerated. So we really we added the Tensor product for enterprise to grow into this segment. We added the remote access product to allow for a basic work from home product more into the mall business, soho business. So that expansion in both direction has worked very well. We look at our geographic expansion, also very successful. We see significant billings growth across all region really, and there's two examples. 1 is APAC. Everybody would identify APAC as a growth region, and we've really put efforts into Japan, China and to some extent also India. I think it's we're very pleased to see that Japan is now growing has been growing 126% within 1 year. So in 1 year, we really cracked the code there. We have a fantastic team on the ground winning larger deals now. But equally important that one of that the biggest market, U. S, also grew 46%. We have doubled down 3 years ago on our organization. We have added enterprise account managers. We've added a or grown our mid market team. We've worked on marketing, digital marketing, but also brand building measures to some extent, and they all pay off. We're very pleased to see the U. S. Contribution. As I said before, especially in the Q3, U. S. Came in with a very good flow of midsized larger deals, which were very helpful. Overall growth in Q3 for the U. S, slightly less than before. Reason is just last year was a free to paid quarter there. And if you compare with that, that looks a bit small. But if you take the 12 month view, Americas, U. S. Is one of our key growth drivers. So very pleased with that. And as I covered before, the 3rd growth initiative is more use cases. So we've invested into new products since the IPO. You can see that in Tensor and in pilot, very strong growth there. Pilot billings, plus 46%, 160%, small base, but this is the type of growth rate that you would expect from a small base, tensor billings, bigger base and also growing very nicely and also remote management. So very excited with this as well. 3 growth pillars, good progress on all of them and more to come on this. We like to emphasize, and we did during the IPO, that we have a very, very unique combination of strong growth and profitability. In the past, they have this famous rule of 40 in the valley, which think some time ago has moved more to the rule of 60 or 70. There are high growth companies with some profitability or the other way around. And 60% to 70% is now more companies are around there. But with our growth profile and margin, we are more towards rule of 90 or 100. So very unique, and we're very proud of that. We've also tried to increase our addressable market. Clearly, it's a €30,000,000,000 market or will be €30,000,000,000 market in 2023. All the digitalization, automation, remote control are drivers in this. So very important megatrends that drive the growth. But now with the acquisition of Giveimax, we have significantly expanded into AR and also into variables, and that has added from all the market studies that we have added another €10,000,000,000 in market size, so very important. So we sum it up. Since the IPO, we've really expanded our leadership in connectivity. And we now, on the back of that, drive our enterprise engagement, continue our regional expansion. And of course, I'm very pleased that we have extra knowledge, extra competencies in workflows, IoT, AI through the acquisition of Ubimax and want to make use of that as much as possible. And we are looking forward to give you an update on all of these strategy elements and product elements during a Capital Markets Day, which we are intending to do early next year, so that you get a sense of what we offer and real life customer examples. So with that run through the performance and the last year, I would like to hand over to Stefan, who will take you back on the financials. Thanks, Oliver, and welcome warm welcome from my side as well. I want to give you a more detailed overview of the financials and the background towards our 2020 billings guidance in Greece. If we take a look at Slide 10, as Oliver mentioned, I think we are very pleased with the results for the Q3. It marks the Q1 post the pandemic related extra demand, which we experienced in the 1st 6 months. I think with that in mind, we were particularly pleased with the performance as the business continued to grow very strongly on the top line during the summer quarter. On top of that, as you can see, we continued to invest substantially across our growth initiatives. And thanks to the business model, our profitability remained also at very high levels. Billings were up 34% on a constant currency basis. And I think as mentioned during Q2, the FX movements or the general appreciation of the euro, but especially against the U. S. Dollar reduced reported billings growth to 29%. And we are very pleased with this growth, especially on top of a very strong Q3 last year where we've been growing north of 60%. And this, together with the exception of first half of the year, our 9 months billing increased by 50% at constant currency rates and 48% reported growth. UB Max, be very transparent, contributed only about €600,000 but we only consolidated them beginning of September. So as expected, a small contribution from the team. Q3 adjusted EBITDA grew 34% on a constant currency and 26% year over year reported and 9 month numbers by 61% constant currency and 58% reported. We have hired about 3.70 FT feet feet feet feet feet feet feet feet feet feet feet feet Es or employees since the start of the year, of which more than 120 are engineers, and we also added nearly 150 employees across all sales functions. So we clearly continue to invest substantially in our future growth. The business model and the economies of scale allowed us to make those investments and still maintain our industry leading profitability. And in fact, we increased our adjusted EBITDA margin to 57% on a 9 month basis. So what's been driving this development? If you take a look at the next slide and our subscriber base, you can see that the subscriber base kept growing strongly to 567,000 as of September end. This corresponds to an increase of 31% over the last 12 months. On a gross basis, we added slightly more than 200,000 new subscribers during the last 12 months, which is actually pretty strong given that a significant amount of those subscribers are not previous perpetual customers, which migrated to subscriptions, but entirely new customers. That being said, we still successfully convert the long tail of our older customer base and move them to subscription contracts, which reflects the stickiness of our product and continued usage of the same even across older customer cohorts. And as expected, subscriber churn is up compared to previous quarters as we have been more forceful in some regions in the monetizations of users in the previous 12 months, especially in regions like China and India. I think we talked about it at those markets, we're paying more on free to pay monetization than others. Very glad to report that subscriber churn in Americas and EMEA, including core market like Germany, actually remained stable. And as in the past, this churn primarily occurred at lower end of the customer spectrum, including our new entry version, remote access. So more importantly, and also I think as mentioned a few times in the past, our euro value churn is significantly below subscriber churn. What's also worth mentioning is that the cohort of subscribers, which we added during March April when we saw the COVID related extra demand of high quality, high ACV, basically, which have been holding on to their subscription. So we haven't seen any early terminations from this customer cohort, which is very good. Let's take a look at the billings composition and the key elements of the reported growth. €106,000,000 of total billings, of which 70% are renewal billings, including gross and upsell. And I think as we mentioned in our H1 earnings release, we assumed that our peak H1 billings included a certain element of pull forward demand, especially for upsell capacities. So despite this pull forward demand, which somewhat lowered our Q3 retention. Despite this, we are very happy to report a continued strong net retention rate of 104%. And ever since moving to the subscription model, our net retention rate has been comfortably above the 100%, and I think demonstrates very well our ability to generate more predictable recurring billings and drive growth via up and cross selling into a now very diverse and growing subscriber base. I think especially with the broadened solutions portfolio including frontline, the cross sell opportunity into AR is even higher today. Those business critical solutions are obviously deeply integrated in the customer workflows, sticky and lead to higher NRRs. And please finally remember that we calculate our net retention rate already net of payment defaults and hence conservative and do not adjust for currency moves, which had a minus 1% impact during the quarter. And as mentioned, the value churn remained significantly below subscriber churn, and that's also consequence of the growing portion of larger customers, and it's comparably offset by up and gross sell. If you take a look at the performance by region on next slide, I think Q3 has again showed the beauty of our global business covering all regions and customer segments, and every region again showed a very strong performance. Let's start with the Americas, 50% growth for the 9 months 27% for Q3. We consider this very good, especially since we did not run any free to pay campaigns in Americas in the last quarter, quite in contrast to Q3 2019. And most importantly, we had a very good and reliable pipeline conversion from the enterprise and mid market team in the Americas. So very happy with that. EMEA remained the largest of the 3 regions with €48,000,000 or delivering a 33% growth. Very good performance from inside sales and reseller team, which contributed nicely to the overall growth. And I think, as you know, our enterprise business in EMEA was historically focusing on significantly larger deals in other regions. And given the very strong and fast pipeline conversion during H1, I think we had a cautious view about the expected Q3 contribution from that segment. And towards the end of Q3 and in Q4, I think it was very good to see an increased pipeline progression and conversion, especially at the start of the Q4 and mainly coming from the midsized deals. And finally, APAC, very pleased with the growth there. Q3 billings growth has gained significant traction, with 51% year over year growth and €56,000,000 at constant currencies, generating €16,100,000 of all billings, mainly due to very strong performance, particularly in Japan and China and across all sales channels, which is a clear sign that our broad investments into more sales reps and local offices continues to pay off there. On Slide 13, moving on to the cost structure. GP margins pretty much in line with last year despite significant investments into additional routers to deal with the increased usage and uses of our platform. And we talked a lot about our growth strategy in the past, which includes significant investments across all of the functions. I think it's I'm very pleased with the hiring progress and including the additions through the Ubimax acquisitions, our employees have increased significantly in the last 12 months. Sales, 56% marketing, 57% R and D employees has grown by nearly 2 thirds. In addition, and as part of us going public, we have significantly strengthened corporate functions such as G and A. Those higher costs have been compensated by lower bad debt expenses in Q3 as well as year to date. So despite all the significant investments into product development, sales and marketing and corporate infrastructure, which will allow us to fully address our potential, we have achieved an EBITDA margin of nearly 55% in Q3 and 57% for the 1st 9 months, which represents a significant percentage margin increase. And turning to next slide. As profitability remains very high in Q3, so does our cash conversion. It remains very strong as well. Net cash from operating activities before tax increased by 60% in Q3 and by nearly 90% for the 1st 9 months. So very strong continuous operating cash flow generation. 1 off CapEx, including the new headquarters, which just moved in and our new ERP system, comprised roughly SEK 80,000,000 for the 1st 9 months. And unlike last year, interests offered around SEK 11,000,000 were paid in the Q3, which kept our levered free cash flow at around SEK 30,000,000 this year. And for the 9 months period, the levered free cash flow has increased by more than 140%. And this strong cash flow is also reflected in our leverage, as you can see in the next page. We have achieved our net leverage targets of below 2x already by the end of the first half of this year, 6 months ahead of plan. Net leverage has remained at 2 times despite the cash consideration we paid for Ubimax. It was around €84,000,000 and that was fully funded basically by operating cash flows, I think a very good capital allocation. On the back of the significantly improved credit profile since the IPO, we also amended our loan facilities and improved our interest margin by 25 basis points across all term loans and actually by 50 basis points for the RCF. In addition, we also removed the LIBOR floor. So while we have significantly reduced our interest expenses, as you can also see in our results. Let me now, before we come to the 2020 guidance, talk about our CSR commitment and our achievements in sustainability and social responsibility. If we take a step back, long before our IPO, we have actually taken measures to become a carbon neutral business, and we obviously see a huge potential to contribute to a global carbon reduction with our products and solutions. It's probably needless to say that digitalization, remote control of devices and remote assistance with augmented reality help customers and users worldwide to reduce travel and utilize resources significantly more efficient. However, to quantify this positive impact, we have actually now commissioned an independent study to assess this green handprint, and we expect the results, which should be very positive, to be available before the end of the year, and then we are going to update you accordingly. And also to demonstrate our commitment, we have actually joined the United Nations Global Compact initiative this summer and incorporated all ten principles into business policies and procedures to foster us even stronger culture of integrity. Let's move on then to our guidance, to our increased guidance for 2020. To wrap it up, following the very strong performance in the 1st 9 months and a strong start into the Q4, especially including the Enterprise segment, we've increased our full year billings guidance from around EUR 4 €50,000,000 to the range between €450,000,000 to €455,000,000 This corresponds to 38.5 percent to 40% growth year over year or €40.5 percent to €42,000,000 on a constant currency basis. Please note that this increased guidance does not include the billings contribution from Ubimax, which we estimate to be around EUR 3,000,000 in the last quarter of 2020. Revenue this year is expected to be at least EUR 450,000,000 but not significantly above. The billings guidance increase will only be realized as additional revenue in 2021. Adjusted EBITDA margin target is unchanged at around €56,000,000 and CapEx also unchanged to be expected between €25,000,000 €30,000,000 again, mainly related to the new ERP and the companies in our new headquarters. So let's also turn towards 2021. As we all know, visibility remains more constrained than usual given the environment. But nevertheless, we continue to benefit from those various mega trends around digitalization and sustainability, which have been accelerated by COVID-nineteen, and we'll continue to drive our business after a solution to the pandemic will hopefully be achieved soon. So this generally positive backdrop, I think the successful execution of the IPO growth plan and the investments which we made to broaden and strengthen our sustainable business model make us very confident that we will build on these achievements and continue our growth path. So notwithstanding that tremendous growth this year, we set ourselves ambitious targets for 2021 and aspire to grow 30%. This includes Uvamax, but also the FX headwinds, which will reduce reported earnings by a couple of percentage points, especially in H1 2021 as well as the positive impact of the increased contribution from Ubimax in 2021. So to wrap it up, we operate in very attractive markets, are very well positioned and want to take advantage, especially if the unpenetrated growth markets in the field of connectivity, augmented reality and IoT. I think that concludes the presentation, and we would now take questions. And the first question we received is from Mohammed Muhamwala of Goldman Sachs. Your line is now open, sir. Please go ahead. Great. Thank you very much. Good afternoon, Oliver and Stefan. A couple from me. Maybe starting with the last point you made, Stefan, around hoping to grow at sort of 30% with the U. V. Max in 2021. Can you maybe just help us understand the shape of that growth? Clearly, you're going to lap some pretty tough comparatives in the first half of the year. So I'm assuming that's going to be fairly back end loaded. The second question is just obviously the gross churn was quite elevated in this Q3 is now in sort of double digits for sort of 2 quarters. As you go through the next few quarters, particularly lapping the kind of the pandemic benefits, how do you balance so how do you expect this to progress? And then on the sort of flip side, on enterprise, it sounds like things are slowly improving. So what is your expectation around enterprise? And how important is it that the deal sizes really expand for you to kind of maintain that sort of net renewal rate above the 100% mark? I mean, is there anything in your pipeline that gives you the confidence? Do you think that sort of the vaccine now will kind of restore decision making normalcy as we move into 2021? It would be super helpful if you can talk us through that. Yes. Lots of questions. Let's try to address them 1 by 1. And Mo, please chime in if we don't answer your questions in great detail. So first of all, the growth aspirations for next year and the timing and phasing of the growth. I think generally, we feel very bullish about where we are in our Solutions portfolio right now, especially given just recently closed Huberman's acquisition. That being said, clearly, Q1 and Q2, as you said, will be tough comps, right? I mean, last year, Q1 closed 75 percent, Q2 nearly 50%. And as you rightly pointed out, therefore, the growth percentage growth will be more biased towards the second half, also reflecting that in H1 'twenty one, we have to fight against some FX headwinds, right, because FX, as they currently are, will reduce reported billings growth in H1 2021 by a few percentage points. So therefore, percentage growth will be more biased towards the second half. Coming back to the gross churn or your second question, gross churn and value churn, I think it's important to differentiate between our subscriber churn is around the 15% mark and our gross euro churn. Subscriber churn has been up primarily in the APAC region and pretty much lines our expectations. I think we pointed out a few times that in India and China, those free users need a stronger push to convert into paying users, but they are not as sticky as our customers in Europe or the Americas. And hence, we see a larger subscriber churn there, but fully baked into our expectations. Important to note though is that the value churn, I. E, our cross dollar churn, which we lose, has remained largely unchanged. It's now around 10%, and it has been comfortably offset always by up and cross sell. So from that perspective, we feel very comfortable. And now as we move more towards larger enterprises, I think we clearly made a step change this year by nearly tripling our customers with an ATV of more than 10,000 and especially the customer cohort in March, April tended to be biased towards larger enterprises. This should allow us and certainly gives us significant headroom for further growth and upsell. And therefore, we should be able to continue to have a net retention rate north of 100%. Coming back to your last question, deal sizes, pipeline conversion, what gives us the comfort level. I think as we closed out Q3 and started Q4, it was very good to see that the level of discussions we had with customers, the regular deal flow across all regions and pipeline conversion certainly helped us in understanding that there's probably more optimism out there. I think our customers have now come to grips with the pandemic or understand how to deal with it. And I think that resulted in a better pipeline conversion after the break, which we expected. And I think finally, what's also good, I think, as you heard us talking in the past, we had a separate enterprise team in EMEA focusing solely on those bigger ticket sizes like 100 ks or more. And I think it was very successful, frankly, in the early days because it shows the organization that even. €500,000 deals, now with our significantly expanded solution footprint, think IoT solutions, I think front side solutions and enterprise team, we've actually put this under one leadership under Lukas Bauer, which is with us in a year's time. And I think now this joint better pipeline management and just a more streamlined approach overall. I think that gives us the comfort level which we need. And I think I'd like to add from a deal size perspective, there is a good reason why we always show these 2 KPIs KPIs and the contribution of the top deals because we really go both we have both strategies and we follow both routes. As I mentioned before, one is really enabling all our inside sales people, all our resellers, channel partners to really go above and beyond, I would say, a typical corporate license with a few add on channel, which would sit between €35,000 So really make them aware of more functionalities, the value of Tencent or single sign on conditional access and so forth. And across the whole sales system, any region get a significantly higher number of these 5 digit deals. So that's clearly an important driver of our success. And we also know, as Stephan mentioned, that these deals, which are above 10 ks, these customers are typically very sticky. There's more upsell, cross sell potential as we go along because it's a different use cases, different set of functionalities that are needed by them. The pricing of these customers, the tensor pricing there is also linked to a number of users, a number of devices and therefore has better upsell potential. So that's one element. And at the same time, we have the dedicated enterprise account managers to really drive 6 digit deals, I would call them. Both initiatives are important, but we do not depend on a single or a few single big 7 digit deals or so to make our numbers. It's really a much broader motion across the whole company. Thank you, Oliver. Thank you, Stefan. The next question we received is from Stacy Pollard of JPMorgan. Your line is now open, Vadim. Please go ahead. Thank you very much. A couple of questions from me as well. Can you give us a sense, you were talking about a lot about enterprise. Can you talk about the enterprise billings number? Approximately what percentage of the billings is that year to date? What would you anticipate into 2021? And then is there more to say about other go to market channels, either inside sales, web shop, etcetera? Or is that or the channel for that matter? Or is that sort of less important relative to enterprise? And then second question, how sustainable are the EBITDA margins if you're investing quite a lot in enterprise and expanding there, plus you're expanding into new product areas, especially developing out your AR, AI products, etcetera. How should we think about that sort of short term and long term? Yes. Let me take those two questions. Thanks, Katie. First of all, billings. I think overall, we're coming clearly from a low base in the enterprise business, but that business has outpaced the remaining growth and it shifts very clearly as Oliver pointed out. In terms of overall billings contributions, probably sitting at the 10% to 15%, yes, reflecting the very large SMB install base we're having. That being said, as percent of new business or new license sales, it's probably around the 20% mark and growing significantly faster than the remaining businesses. So that's the overall footprint of the enterprise business. And as you can see, it already became material now with 10% to 15% of overall billings contribution, I mean, really driving our strong net retention rate. In terms of overlay, enterprise channel, I think that channel was more opportunistic in the past, I would say. It was more like carrying the paper, frankly, in some regions where we didn't have salespeople on the ground or couldn't do business for VAT reasons, all of the likes. We are now engaging much more strategically with the resellers. We have significantly increased the number of resellers we have onboarded, also taking into account new resellers in IoT and AR. But there are still ways to improve that. But I think in some countries like Japan, for example, we've been very successful with really adding high end resellers to our business. And I think going forward, it will be the reseller business will be more a contributor to our overall enterprise footprint than a separate go to market channel from my perspective. And then margin expansion, maybe what you want to add on this, maybe because you were also asking inside sales. Inside sales continues to be extremely important for us. It's really it's a machine. It's super it's well oiled. It's running very smoothly in out of 3 locations, Germany for so here in the headquarter covering all of Europe and then Florida covering all of Americas and Adelaide covering Southeast Asia and then actually a few people in Shanghai now as well. And I think whenever we are playing the full go to market approach, we are very successful and very resilient also. So if you look, for example, at the growth numbers in Japan, I think the secret of success in Japan now is that we have a very dedicated high performing inside sales force. The new leader in Japan based out of Tokyo has successfully cracked some key reseller relationships, and we're seeing the 1st enterprise deals coming in with some direct sales force, so account managers there. So this is really the business mix. Clearly, the growth potential in enterprise is very significant because of the ticket sizes and whether it's a big deal of $90,000 or $100,000 or whether it's few smaller deals around $15,000 $20,000 all of this is significantly bigger than what we have sold in the past. So the motion of adding enterprise people, further training inside sales to drive bigger tickets and addressing channels more holistically, strategically, all of that together gives us multiple growth levers and creates resilience and momentum. I think most prominent example on channel would be Americas. For long, not a focus at all. Now that we have a very seasoned channel person that we hired, I think, half a year ago, we're starting to see traction. So there's so much wide space to grow into if we address these places with the right people that we feel very confident to be successful across many go to markets next year. Margins, sorry. Yes. And then on your second question, margin development. So I think fundamentally, what will happen next year is GP margins are going to stay at 91%, 92% level, so no major changes there. I think if you follow us in a few years, I think every year had a specific investment theme. Clearly, in 2020, we significantly expanded our R and D organization. We added 120 engineers. So I think that was an important step for us to really invest into the future. I don't expect the R and D invest or the FTE headcount increase will remain at that pace within R and D. Probably same for sales, Clearly, since 2019 2020, we've substantially invested in traditional quota carriers and sales support functions, presales engineers, retention teams and the likes on a global basis. So we've upped our sales team substantially now with 2 50 quota carriers or more on the ground. So very we feel very good there. We continue to add, but again, probably not at the same pace. I think where we probably spend more is clearly in marketing to actually increase our or the awareness of our new solutions, especially around augmented reality and IoT and enterprise solutions. I think there, we can and should spend more, and that might be a line item which where we see an increase next year. But easily within our financial envelope, which we developed and communicated over last year. So any scale effects which we will see in R and D and sales, we will probably reinvest into marketing spend. And G and A, I expect that G and A remains at the same level as last year. And bad debt, long term basis, should be around 2% to 3% as it currently is. And if you add all of that together, we should be at around the same margins as last year because Hubert Max will have a slightly dilutive impact next year because clearly they haven't been at our superior EBITDA profitability level. But we can afford that and still maintain the same margins for the overall business. Great. Thank you. The next question received is from George Webb of Morgan Stanley. Your line is now open, sir. Please go ahead. Good afternoon, Oliver and Stefan. I have a couple of questions, please. Firstly, around 30% growth target for next year, Can you talk about a little bit about the assumptions you're making within that specifically on the churn side? I guess in this macro environment, one of the big risks is what happens to SMB bankruptcy. So any color on the assumptions you're making on that would be helpful. And then secondly, on the uptick in subscriber churn around the likes of India and China, is that higher churn a trend you expect to continue seeing moving forwards? Or are there any actions you can take internally to try and improve retention on that part of the customer base? Thank you. Sure. So on the churn side, when we put together our target for next year, we clearly have now a couple of years of experience in terms of which country, which license types, which kind of intensity and what kind of churn this triggers. So I think we have a very good understanding. I think our churn numbers and our renewal numbers have always been pretty much bang on. That being said, we also took into account a slightly increased number of churn in our planning assumption, especially reflecting the circumstances you just mentioned, George. And we've also reflected a higher churn from those countries, as you mentioned, APAC in China and the Inter region. We already anticipated that this year that we have a significantly higher logo churn because we've seen that in the previous years, and we didn't expect any significant retention improvement there. So I think that's all been well baked into our aspiration of 30% growth. Clearly, if we were to see any significant deterioration, then we would need to revisit. But I think we feel very comfortable with our churn assumptions going into 2021. And then maybe on APAC, I think, yes, can we do something to improve there? I think it's really in India, I think we've been telling you and investors that this a tough market to monetize free users. So from our perspective, it doesn't come as a surprise that we see a higher churn there. In China, it's probably 2 different markets. On one hand, you have the very low end market, which the moment you monetize, they try to get away and find a new cheap version. That's the customer segment where you see very high churn, and they are not also willing to enter into subscription contracts, frankly. They prefer a onetime payment and be done. And then on the other hand, you have like the larger enterprises, which sign up for larger deals, which is a relatively new market for us, and we haven't had a huge amount of subscription contracts there. But there, we clearly see much more similar churn rates than in more mature markets like EMEA and the Americas. Yes. I think it's important to know that it's a maturity point as well. So in terms of where are we in those markets, because if you look at the our growth pattern in the past, a certain element of our growth is clearly converting free users into paid users. This is the entry segment, relatively small business licenses, then a significant chunk of these customers over time migrate to larger or upgrade to larger licenses, which brings churn down. These are the more stable cohorts. And then once we get into reseller business and the larger enterprise business, the churn is significantly lower. So as a matter of fact, in countries like India, China and other Southeast Asian markets, we are much more in this first step of growth versus Europe or Americas. And therefore, there is embedded slightly higher churn rate. Some of that will go away over time because we are requalifying our customer base, focus on the ones where we can upsell, lose at the low end. And over time, the quality of the customer base will increase and churn will come down. That's clearly visible in other geographies as it happened over time. That's helpful. Maybe just a follow-up on one final area. In terms of the free to pay campaigns, I know you started to turn those back on in certain Western European countries and China. I think that's what you flagged at the Q2. Where are we today in terms of those campaigns? So in the Q3, we have done campaigns in Europe and in some other APAC countries. And we have not done anything in the U. S, which is, of course, a huge market. If you remember last year, Q3, we were running campaigns in U. S, which significantly contributed. We have been able to achieve the Q3 results, very strong results without any free to pay campaign in the U. S, which I think is remarkable as well. We are now, as we speak, or we have run campaigns in the U. S. Starting with the Q4. And the behavior we see and the contribution we see is very much in line with what we have expected in the past. So that's also one of the reasons why together with the enterprise performance in the start of Q4 and all the other developments, we see. That's also the reason why now with 6 weeks to go, we feel very confident about the year end despite all the macroeconomic uncertainties around us. Very helpful. Thank you. The next question received is from James Goodman of Barclays. Your line is now open sir. Please go ahead. Good afternoon. Thanks very much. Yes, sorry, this is a bit of a straightforward way to try and reconcile a few of the things that we've been discussing. But just trying to look at the Q4 implied growth rate for this year. That's reasonably below the growth rate that you're now expecting for next year. And I appreciate there's no seasonality element here with the renewals being a bigger proportion of the Q4. But at the same time, as I should think about the shape of growth, you're also saying that next year, you'll expect growth to be significantly weighted to H2, so well above 30%. So it feels almost like we're expecting H2 or Q4 next year to be a higher growth rate than this year despite the higher base. So I'm just wondering if there's anything I'm missing there in terms of the mechanics. And then just a couple of quick ones. UBMax signed some good deals straight away at the end of the quarter. Just wondered if those were cross selling deals at all or whether there's any benefit from that already, whether you're starting to see some fertilization of your own customer base. And finally, I just picked up on the Microsoft Teams announcement earlier in the quarter. Is that just a product integration, a technical integration? Or is there some potential sort of business model opportunity around that specific integration as well? Yes. So let me start with Q4 and the implied guidance. If you take the upper end of our guidance 4.55%, that would imply a 23% growth basically on a reported basis. Now let's bear in mind that we clearly have the FX headwind also in the Q4. In Q3, there was around 5 percentage points. And despite that, our implied guidance will be 23%. So if you add the FX movements on top of that, it would be 28%, 29 percentage points growth, which given the high renewal base in the 4th quarter is actually a pretty good growth rate overall. We also had and as we mentioned, we clearly had some pull forward effects, right, in Q1 and Q2 this year, where customers who would have been up for renewal later in the year had the need to buy more seats and more capacities and actually bundle that into a renewal of the subscription contracts. And that obviously has a slightly negative impact as you could already see in Q3. But despite that, we are aiming for an underlying growth of high 20s in the Q4. And now with regards to the waiting for next year in H1, we clearly have some more FX headwinds, right? If those rates remain the same, it will reduce our reported billings in the first two quarters, frankly, until we are on the same level playing field again. And I think if you take a step back, what are the key drivers there? I think we feel very confident about our solutions portfolio and our unified go to market approach now in EMEA. We have significantly expanded our sales capacity in that region during the last 3 to 4 quarters. We see very good customer engagement and pipeline progression now. And that should clearly accelerate in the second half of twenty twenty one, yes? I think you put all of this together, the building blocks and the pipeline, that should result in significant enterprise contribution in the second half of twenty twenty one. Yes. And maybe to your next questions. Yes. Ubimax, so I think, to be honest, this was Ubimax pipeline so far, and there was no relevant cross sell yet, definitely not in Q3, about these different companies. What is the case, of course, that just the mere fact that Ubimax is now part of the TeamViewer group, reportedly by the Ubimax people, that is easing quite some or has been easing quite some concerns with new customers, right? So what they reported in the past is while the solution is absolutely stunning and really allows for significant value add and high ROI, The question when they were a standalone company around, well, okay, you have a fantastic product, but you're small and how long are you going to stay? That question has completely gone away now. As being part of TeamViewer, you can basically just tick that box and say, okay, part of a larger group. Of course, we're also making very clear to customers that we're applying all security the security posture, GDPR and everything else to the Ubimax Group. So I think, again, that drives adoption. So that was certainly helpful from a communication perspective and from being part of a larger group perspective, but not no real cross sell deals yet in Q3. Now in Q4, looks slightly different. We have more often the situation that salespeople go together to certain companies and present the relative the solutions of each other. So just yesterday, we had a deal in India where the TeamViewer sales force presented Hubermanx frontline, and we were able to win this deal, 5 digits, small 5 digits. So this is starting to happen. What I think gives us a lot of comfort is that overwhelmingly customers are very interested TeamViewer customers are very interested in the Umaxx portfolio because it's really the next natural step for better workflows involving workers in the front line and the solution suite just makes a lot of sense to customers. All of those, the sales cycles are, of course, this is not weeks. We're talking months because the switch digitalization projects, but I think the excitement on customer side is high. And likewise, also one of our key partners, Apple, that we do a lot of work with for TeamViewer pilots, so the augmented reality product on smartphones and tablets. They are also very excited because with the Ubimax solution portfolio, that brings tablets and smartphones into industrial processes, which is very interesting for them now that they build the AR AR AR functionality. So that's a very good movement on this one. So early days, but very promising from what we hear from customers and partners alike. And to your last question, Microsoft, the Teams, this is not a commercial integration. As you rightly point out, this is technical integration. It goes along with our general strategy, make TeamViewer available where companies use other software products. As you're aware, we have integrations with Salesforce, ServiceNow, Zoho, Zendesk, MobileIron, you name it. And we also have Microsoft Intune integration. Now getting into Teams, of course, is a big step forward because of the broad usage. It is video collaboration and meeting, while our pilot product is really an augmented reality real life support proposition. Putting that together means customers or TeamViewer Teams users can then experience TeamViewer pilot. And if they choose to use it more regularly, they would buy a license for our product, which is the bring your own license concept, which we have been very successfully using over time. That doesn't mean that this integration couldn't become more commercial over time, but nothing like this yet. What we see, if we go when we go into enterprise situations, the question of integrations is a very important one, and it's a big differentiator versus lower end competition when we can, a, talk about GDPR compliance, b, talk about security and c, all these talk about all these integrations that our enterprise customers need and that makes us win these deals. Perfect. Thank you, Felipe. The next question we received is from Ben Castillo Bernas of Exane BNP Paribas. Your line is now open, sir. Please go ahead. Good afternoon. Thanks for taking the question. I'm just asking how much overlap is there between yours and UVMAX's enterprise pipeline? I'm UBMax helping your existing pipeline opportunities. Ubimax helping your existing pipeline opportunities? And I guess a follow on from that would be looking at your current enterprise customer base. How much of that customer base can be a target for cross selling TEVMAX products down the line? Again, trying to gauge if the potential overlap is small sort of sub 10% of your footprint or can the potential footprint overlap be more meaningful than that? Thanks. Yes. I think general answer is the overlap is very, very minimal. I think both pipelines relative to the addressable markets is small and even smaller is the overlap. And there's very, I think, single cases where we have been active in the market as Team Europe with our pilot product and Ubimax customers were looking at it. And now we, of course, bring that together into a combined proposition. But generally speaking, I would describe it as both companies with their technology and features and solutions going together and developing pipeline. So we're clearly on both ends in pipeline build mode, and it will just be fertilizing each other, as James had put it. Great. Thank you. The next question is from Andreas Wolf of Barbour Research. Your line is now open, sir. Please go ahead. Yes. Hi. Thank you for taking my question. The first one would be on the competitive landscape. Have you seen any special or particular behavior by your competitors as you are implementing your free to pay campaigns? And then the last and second question would be on the verticals by Intensor in Q1, Q2 and Q3, have you observed any particular patterns here that would maybe provide you some insight and also as well with regard to the use cases? Thank you. Yes. I'll take the first one. Competitive landscape has not really changed. You were asking about free to pay campaigns specifically. Whenever we run free to pay campaigns, effectively what we do is we force users in a way to choose whether they want to have a paid license or not. In that moment, clearly, some decide to buy, some decide to walk away, and some decide to buy but look for the cheapest solution out there in the market. So that's happening. And of course, depending on geography, there's few players that benefit from that movement. So when we run a campaign in Europe, then there is a few lower end competitors that benefit from it in U. S, same thing and also in APAC. So that's normal course of business, no change, no significant significance in the competitive movement. Every time we do it, competitors get a sense for it relatively quickly because there's always a bit of noise in the social media channels and then they try to put out offers, special promotion offers to win over these customers. That's a known element to our market, and we know very well how to deal with it. On the vertical question, maybe, Jean Marc? Yes. On the vertical, I think we're clearly a very horizontal business, and we've always been horizontal. And our solutions cater towards all customer segments. We did have a few gaps, I would point out. Clearly, financial institutions were in the stronghold of us. And in Q1 and Q2, I think we extended our footprint in pretty much across all verticals, obviously, except in those which have been significantly affected by the pandemic, like the travel industry and tourism industry. But that was never a big vertical for us anyway. So I think overall, very broad in terms of verticals moving into financial institutions and also government. We've seen quite a few government deals that includes local government and municipalities in Q1 and Q2. I think we've built on that successfully, and that tends to be a pretty sticky customer base with significant up and gross sell potential. And then maybe in terms of use case, I think there were 2 different kind of main use cases clearly in Q1 and Q2. Obviously, enable your workforce to work remotely. That was a big driver, right, with immediate demand, which had to be fulfilled. And then secondly, I would say, digitalization of the entire device management. And with device management, I mean, more like industrial devices. Imagine you need to manage your POS, they have terminals at an airport or the likes or in the shop floor, covering and maintaining health care devices and the likes. I mean, those are really the kind of industrial devices where I think where we stand out in terms of how to remotely control and manage those devices and upon controlling, managing those devices, digitalize your business processes. I think those are for me the kind of 2 key pillars in Q1 and Q2. And clearly, the second one, I mean, managing your industrial device and digitalize business processes that is now clearly benefiting from long term trends, which we discussed a few times. Great. Thank you. And the last question for today is from Victor Chang of Bank of America. Your line is now open, sir. Please go ahead. Hi, Oliver, it's Stefan. Thanks for taking the question. Just two quick ones. So first, focusing on the customers you acquired during the 1st lockdown around March, April, you mentioned just how it's good more towards larger users, so they're stickier. But I assume there's a long tail of SMEs and still free users that are using the product. So do you have any data on how they have been monetized so far and what are we seeing on that side of things? Follow-up on some of the questions people have asked on the free to pay conversion. I think historically you alluded to a number of the contribution to about $15,000,000,000 20,000,000 dollars of billings. And obviously, now resuming in EMEA and APAC and now in U. S. In Q4, is it still the ballpark number about $15,000,000 $20,000,000 or do you see a higher contribution since there are a lot of free users new free users during the lockdown? Yes. So I guess I'll start and I'll jump in. So I think first of all, the cohorts which we won in Q1 and Q2, they've clearly been more biased towards higher ACV, higher value contracts. And we did not as you know, we didn't monetize any of the free users, right? So this was really customers which we won. Some of them might have been free users unknowingly or didn't know our license condition or the likes. But mainly, those customers were coming because they had an immediate demand basically across all verticals and with significantly higher ticket sizes, right? I mean, if you take a look at our enterprise debts, the number of customers with contract value of about 10,000, we made a step change in Q1 and Q2 here. And now by the end of the year, we nearly tripled those numbers. So very strong and good customer cohort we won during this time. And now your question was how about the long tail of your SMBs? I would say probably more like your question was around the long tail of the free users, which we haven't monetized and how do we deal with that. I think we've been very considerate in a sense of how do we monetize free users. Have we suspended the free usage, the monetization of the same in the 1st 6 months? Then we did run campaigns again in EMEA and in APAC across all devices, I would say, but in a very short time frame, yes? And we also made sure that we basically covered devices which used TIMEO for quite some time, yes? So I think overall, we've been considerate and also reflected the economic circumstances some of our users are in. And the same is holds true for the Americas. We run the campaigns, but we do it on a considerate basis. And that leads me to your second question in terms of the overall free to pay potential. Yes, it was around 15 to 20, sometimes a bit more. In 2019, it was a bit more. And now the way how we run those campaigns, I expect it to be again in that region. Hopefully, that answers your question, Victor. I mean, we expectedly I think to the kind of point of Stephan being considerate, I mean, we really explicitly accepted that some free users will come, will use us for some time peak usage and will then go away and we will not be able to monetize them. I think that's the decision we took. It would have been easy to force them to pay in the moment of biggest issues, so to say. We've not done that as a contribution to society, so to say, and let those people go. Those people who were sticky and embedded TeamViewer into their business processes and use cases, those people we then asked to buy a license and that showed the same success rate and behavior that we had before anyway. So if you wish, we had an overlay, an additional overlay of free users that came, we didn't charge, went away with 0 effect on our billings, but we had good conversions of a certain percentage and that drives also the outcome. But that's very comparable to what we've done in past year. Got it. Thank you. As there are no further questions, I hand back to the speakers for closing remarks. Well, thank you, ladies and gentlemen, for your contribution, your questions, your attendance. And if there are any further questions, please reach out to the IR team. And thank you very much. Thank you. Thank you all. Bye. Stay safe. Ladies and gentlemen, thank you for your attendance. This call is being concluded. You may disconnect.