TeamViewer SE

XBER:TMV

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the TeamViewer AG Q3 2022 Results Call and Webcast. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Ursula, Head of Investor Relations. Please go ahead, ma'am.

[Ursula Querette, executive]

Thank you. Good morning, everyone, and welcome to TeamViewer's Q3 2022 Earnings Call. My name is Ursula Querette, and I'm happy to host TeamViewer's earnings call for the first time today.

I recently joined the company in my new role as VP Capital Markets and Head of IR, and I am looking forward to being your contact person going forward. I already met some of you virtually or in person, and I'm really looking forward to meeting many of you in the coming weeks and months.

I am joined today by our CEO, Oliver Steil; as well as our CFO, Michael Wilkens. They will now present our business and financial update for the third quarter of 2022. As always, the presentation will be followed by a Q&A session. Please note that the deck contains some new slides as we slightly adjusted the flow of the presentation. But of course, we will present you the same KPI set as usual, in the appendix with tables for all relevant figures also remains the same.

One last thing before we start, as always, please pay attention to the statement with respect to forward-looking statements on Slide 2. With that, I hand it over to our CEO, Oliver Steil.

[Oliver Steil, executive]

Good morning, everyone. Thank you for joining our Q3 earnings call. Thank you for the introduction, Ursula. I would like to take this opportunity to welcome you as our new Head of Investor Relations. I think we all are really, really glad to have you on board. And as usual, I will start by updating you on this quarter's business and financial highlights. I will then hand over to our CFO, Michael Wilkens, also to you, Michael, a very warm welcome on this particular stage. We already mastered 2 months together in this environment since your start, and I'm looking forward to partnering with you on TeamViewer's next milestones. Today, Michael will guide you through our financials in detail, including updates on our financial structure, cost development, and cash generation. So next slide, please.

Overall, we are satisfied how the business developed in Q3. Of course, the overall macroeconomic environment remains challenging. But I think TeamViewer once again displayed strong resilience amidst these circumstances. Based on our Q3 performance, we confirm our full year guidance. At the conclusion of fiscal year 2022, we expect billings at around EUR 630 million, IFRS revenue between EUR 565 million and EUR 580 million and an adjusted billings EBITDA margin between 45% and 47%. And I think this is based on various drivers from our perspective.

So firstly, total billings in Q3 came in at EUR 144.6 million, which is a plus of 15%. And 7% on a constant currency basis compared to the third quarter in 2021.

Secondly, profitability in Q3 remained strong. This was accompanied by big improvements in free cash flow and cash conversion. Furthermore, we also increased our EPS substantially both in Q3 and from a 9-month perspective.

Thirdly, we continue to implement monetization measures such as cross and upsell campaigns as well as price adjustments. And against this backdrop, strong customer retention and high satisfaction underscore the quality of our product portfolio. And this point is particularly important to me. It shows how customers value TeamViewer's products above potential alternatives. Continuous customer satisfaction is really a key asset for TeamViewer.

Fourth, our regional diversification, again paid off. The APAC region showed signs of a turnaround. And EMEA particularly proved to be resilient, very resilient region despite the prevailing economic headwinds with a year-on-year constant currency growth of 13%. Fifth, our enterprise business retains a vibrant growth momentum, showing 47% billings growth year-over-year. Enterprise has a strong net retention rate of 113% and growth is fueled by a combination of larger customer wins and upselling into higher pricing markets.

And six, we further increased the momentum with our strategic partnerships in Q3. For instance, we conducted a number of successful joint sales events with our tech partners, SAP and Google Cloud. And a couple of weeks ago, we entered into a partnership with Hyundai Motor and explored together how we can support their smart factory with our solutions in the best possible way. So satisfied customers, profitable growth and high-level partnerships for the enterprise business. We believe that we are actually quite well on track. And while the economic uncertainties are likely here to stay for the time being, we have a reasonably positive view on Q4 which traditionally is a strong quarter given our back-end loaded pipeline.

TeamViewer is a resilient business, underpinned by a solid financial structure. And speaking of financials, let me highlight the most relevant Q3 KPIs on the next slide.

To begin with, we continued our top line growth. Billings and revenue increased with 15% and 12%, respectively. The pronounced currency effects clearly reflect the volatile exchange rate environment. The share of enterprise business increased by 4 percentage points year-on-year overall. 45% of TeamViewer's total billings growth in Q3 came from the Enterprise segment. The other 55% were driven by SMB.

Our products are highly attractive for a wide range of customers from various industries. We continue to establish TeamViewer as the go-to partner for high-impact strategic investments in digital transformation across the industries. But at the same time, help our customers to increase short-term automation and efficiency. And obviously, this is key in the current environment. All these factors made us achieve a strong net retention rate of 103% on group level. And on a year-over-year basis, we improved group net retention rate by 7 percentage points.

In addition, TeamViewer is again growing profitably. Adjusted EBITDA grew by 42% to more than EUR 60 million, and our adjusted EBITDA margin stood at 42%, which is 8 percentage points higher than last year's Q3. It's also the result of our effectiveness in execution. And in turn, we raised basic EPS to EUR 0.23 per share from a 9-month perspective compared to the previous year period. This is more than doubling of basic EPS. This was partly driven as well by a lower number of outstanding shares due to our successfully concluded share buyback program.

Michael will elaborate later on more drivers of our net profit in his part of the presentation.

In total, we are well positioned to cope with the limited visibility around the economic development in the coming months and beyond. Fundamental demand for TeamViewer solutions remains strong. And with that, let's have a closer look on our regional performance on the next slide, please.

While Americas showed single-digit growth at constant currency, APAC showed signs of a turnaround in Q3 and EMEA proved to be robust. So in EMEA, we saw good development in our billings growth rates even despite the macro challenges, high inflation rates and geopolitical uncertainties.

Here, Q3 billings increased by 13% to EUR 68 million and by 10% to EUR 230.9 million on a 9-month basis. We accelerated our sales momentum and particularly benefited from a well-developed, sticky and satisfied customer base, which is key in the current macro environment.

Strongest increase in billings on a year-over-year basis was reported in the America. Here, Q3 billings increased by 18% to EUR 58.5 million and by 19% to EUR 159.2 million in the first 9 months, respectively.

However, clearly, our performance in the Americas was largely driven by FX tailwinds. So our Americas growth at constant currency was clearly weaker and behind our own expectations. While we are disappointed with this development, we are reasonably confident that Americas will pick up again in Q4 as the pipeline looks promising.

Furthermore and from our point of view, EMEA is a little bit ahead of the curve in terms of recovery. We witnessed decision-makers taking kind of a pause here in Q2, which is reversed itself now in Q3. And this is also what we believe happened in Q3 in Americas and should reverse in Q4.

We are pleased to see that APAC showed signs of a turnaround after the beginning of 2022 had been rather challenging, if you recall, under the leadership of Sojung Lee, the President, she joined in December last year. APAC now delivered a 12% increase to EUR 18.1 million in the third quarter billings and 9% to EUR 54.1 million in 9 months, respectively. Particularly in this region, our Enterprise segment continues to grow steadily at the beginning, but it continues to grow. And we are entering high-level partnerships, which indicate that the enterprise motion starts to bear fruit in this region as well. Next slide, please.

Now have a closer look at our SMB and enterprise billing split with an overall shift towards higher ACV buckets, we successfully increased the quality of our customer base, again.

When looking at our SMB segment on the left, LTM billings in Q3 increased by 8% on a year-over-year basis and amounted to EUR 480 million. This was partly driven by our free-to-paid monetization campaign which is actually stabilizing the entry segment as well as FX tailwinds.

However, I think that's a recurring theme. The strongest contribution to the SMB growth clearly came from our very successful cross and upselling efforts. Accordingly, the lowest ACV bucket of customers with a volume of less than EUR 500 each declined by 12% on a year-on-year basis. But at the same time, the billings from our highest SMB bucket between EUR 1,500 and EUR 10,000 significantly increased by 22% and amounted to a very strong EUR 203 million.

And in addition to that, and it's very important, we saw a net upsell from SMB to Enterprise of EUR 18.6 million. This was largely driven by the general trend towards shifting large SMB clients to our Tensor license for enterprise connectivity. This clearly shows the continued Tensor success for larger customers who are looking for more efficient and highly secure solutions as the right answer in those times.

Total Q3 LTM billings in our Enterprise segment increased by 52% year-over-year to EUR 118 million. This growth originated from all ACV buckets, as you can see in the chart on the right. Next slide, please.

I mentioned the growth momentum of our Enterprise business in my intro, and let me give you 2 different examples of how our Enterprise customers use our solutions.

Firstly, let us look at British multinational optical retail chain Specsavers. The company leverages TeamViewer's Enterprise remote connectivity solution, Tensor to provide powerful remote support to its 32,500 employees across roughly 2,300 stores in 10 countries. For them, it is important that our solution is compliant with their security and GDPR requirements as they deal, of course, with sensitive health data. By using TeamViewer, Specsavers can globally connect and fix issues with in-store PCs as well as medical devices like the patient management system.

And to enhance their support capabilities, Specsavers recently introduced TeamViewer's augmented reality-based remote assistance solution in its U.K. stores which makes it even easier for their technical experts to visually guide opticians or retail staff through maintenance and repair processes of optical devices from a far. This leads to smooth store operations without major disruptions and therefore, ultimately, to a seamless customer experience.

Very different case, GlobalFoundries. That's a good example of the success of our Enterprise AR platform, augmented reality platform, Frontline. GlobalFoundries, as you know, one of the world's leading semiconductor manufacturers. They recently introduced TeamViewer's vision picking solution in Europe's largest semiconductor factory. Introduction of TeamViewer Frontline leads to a 35% time saving in the warehouse picking process. And besides the quicker picking time, inventory accuracy increased by 1/3, pretty much comparable to use cases like Coca-Cola and DHL and so forth.

And what is also important, the new digitalized process also eliminates 100,000 sheets of paper printouts per year because it's a full straight-through digital process, which obviously helps save costs and also helps the environment. TeamViewer's solution fully meets GlobalFoundries high requirements for data protection as well as health and safety for their workers.

And then there's a new partnership with Hyundai Motors. I mentioned our high-level partnerships before we talked about SAP and Siemens a lot. And recently, we announced the partnership with the South Korean automotive company, Hyundai Motor which I think nicely illustrates our growing presence in the APAC region as well. It also demonstrates our company's strong value proposition to the automotive industry and underlines our pioneering role in the industrial metaverse space.

We -- TeamViewer will provide its augmented reality platform and AI capabilities to Hyundai Motor Smart Factory in Singapore. Together, we will conduct research and development activities around AR-powered smart factory operations, including immersive digital experience for frontline workers and AI support. It's our joint goal to support Hyundai Motors in shaping how fast will be manufactured in the future by digitalizing processes in assembly, maintenance, quality management, logistics and workforce training.

And I think all in all, these examples give you a good overview of how TeamViewer solutions enable large companies worldwide from different industries, different use cases, different parts of our solutions, but always with the aim to digitalize their business-critical processes. And with this, let me now hand it over to our new CFO, Michael.

[Michael Wilkens, executive]

Thank you, Oliver. Good morning to all of you. I'm very happy to be here and to present our financials for the first time today. Let me emphasize that, together with my IR team, I look forward to working with you in the years to come. I hope to meet all of you in person, obviously, very soon as well. Let us now take a more detailed look at our Q3 numbers. I also will give you an overview over the most important operational developments from a financial perspective. Next slide.

This group overview is a new slide, at least in terms of the way the KPIs are displayed. It is a concise overview of our billings, revenue and profitability on group level. Going forward, we will show this slide as an addition to the SMB and Enterprise breakdown.

The big picture is that TeamViewer's billings, revenue and profitability are all on track. Today's billing -- total billings grew by 15% in Q3 and came in at EUR 144.6 million. Adjusted for constant currencies, the growth was 7% in Q3 year-on-year. On a 9-month year-on-year basis, billings increased by 13% or 8% on a constant currency basis to EUR 444.2 million.

The upper right-hand chart shows profitability on billings using adjusted EBITDA and the corresponding margin. In Q3, we recorded a total adjusted EBITDA of EUR 60.1 million, which was 42% higher year-on-year. The respective margin was 8 percentage points higher at 42%. The 9 months adjusted EBITDA grew by 6% to about EUR 201.4 million with a margin of 45%.

On the lower left-hand side, you can see TeamViewer's quarterly revenue development. You can see quite well that revenues follow the billings development in a delayed way with more balanced growth rates. In the year-on-year Q3 comparison, revenues increased by 12% to EUR 143.4 million. On a 9-month basis, revenue grew by 13% year-on-year to EUR 415.4 million.

Let me give you another argument, which speaks for the growing relevance of revenue as a KPI. We began to take in the first multiyear deals in Q3 2021. Up to the current quarter, we saw an increasing share of multiyear deals. These are recognized as billings with a total contract value within the quarter where the deal is signed. The revenue recognition of such deals works differently. Here, multiyear deals are instead spread over the entire contract duration, resulting in less growth spikes than with billings. You can find a reasonable explanation of the comparison in the appendix of this presentation.

Against this background, we also decided to show the adjusted EBITDA based on revenues which you can see on the lower right side of this chart. On a year-on-year Q3 comparison, we saw a 33% increase to EUR 58.9 million, corresponding to a margin of 41%, which was 6 percentage points higher year-on-year. On a 9-month basis, the adjusted revenue EBITDA grew by 5% to EUR 172.6 million. This corresponds to a margin of 41.5%.

With this, let's move to the next slide, please, where we'll focus on SMB, which accounted in Q3 for around 82% of our total billings. Next slide, please.

Overall, Q3 saw a solid SMB billings improvement. Quarterly billings grew by 10% on a year-on-year comparison. On a 9-month basis, SMB billings increased by 8% year-on-year to EUR 355.5 million. SMB continued the trend towards higher average selling prices with an average of EUR 773 in Q3. The segment benefited from cross and upselling and from the continued monetization campaign as well as from U.S. dollar tailwinds.

Despite a subscriber churn of 14% without Russia and Belarus, the SMB subscriber base remained stable at 616,000. In addition, it increased in quality due to the trend toward customers with higher contract values. In Q3, again, we successfully continue to upsell our SMB customer base into our defined enterprise segment. This is a key reason why the absolute subscriber growth in SMB as such continues to become less and less meaningful growth metric for the segment. Next slide, please.

Now let's take a more detailed look into our Enterprise segment, which in Q3 accounted for around 18% of TeamViewer's total billings. Enterprise billings growth accelerated to 47% in Q3 on a year-on-year basis, amounting to EUR 26.7 million. This development was mainly driven by the EMEA region with an improved pipeline conversion of customers committing to increase license volumes despite the uncertain macroeconomic environment. Let me quickly add the year-to-date perspective. Nine months' enterprise billings increased by 39% year-on-year to EUR 88.7 million. In Q3, the average selling price amounted to EUR 35,800 and thus remained stable compared to the previous quarter.

Compared with the prior year quarter, we see a significant uplift of 11%. This year-on-year increase reflects the positive development of all our enterprise ACV buckets, as Oliver mentioned already before.

When looking to the bottom left, the Q3 enterprise net retention rate was at 113% on an LTM basis and thus increased by 4 percentage points year-on-year. Accordingly, the number of Enterprise customers developed positively and amounted to around 3,300 at the end of Q3. This was also driven by the dedicated upselling campaign whereby existing SMB corporate clients migrated to TeamViewer's Tensor license for enterprise connectivity. Next slide, please.

Let's have a look at our recurring cost base. while billings grew by 15% in Q3, recurring costs remained almost stable. This resulted in a significant adjusted EBITDA margin improvement, showing the strong profitability of TeamViewer's business. Let's have a look at the Q3 year-on-year development in more detail.

Cost of sales grew in line with billings on a like-for-like basis taking into account the reclassification of debt collection costs to G&A back in Q3 2021. The increase of sales cost by 7% was mainly currency related, while sales bonus capitalizations had a positive effect. For your information, we started capitalizing sales bonuses back in Q4 2021.

When it comes to marketing costs, it is worth noting that Q3 was the first quarter with a like-for-like consideration of the sponsorship deals. Still, marketing costs decreased in Q3 year-on-year by 11% with lower advertising spend. The R&D and G&A expense increase by 14% and 12%, respectively, was mainly driven by reduced bonuses in Q3 2021. Lastly, the strong decrease of other operating expenses by 26% was mainly driven by lower bad debt expenses due to a higher share of the enterprise business with better payment behavior.

I would like to use this moment to add a few remarks on cost development from a more general perspective. The remix program, which concluded in Q2 resulted in scaling effects in the past few quarters.

Remix was a boost for our profitability. Just only considering current macro effects such as inflation and exchange rate changes, this past development is not wholly indicative for the coming quarters, although we successfully managed to hedge interest rates and energy costs.

Since some of you have asked me in the last weeks, yes, we are planning investments into our future. This will require, for example, more R&D stuff. There will also be a slight increase in our infrastructure invest with some projects already started in Q3. Having said that, I am here to diligently manage costs at the cost base. TeamViewer has been operating and will be operating a highly profitable growth business. And this nicely translates into the next slide, where we will have a closer look at how our profitability developed below the adjusted EBITDA in Q3 and year-to-date.

This is a new slide where I will just highlight a few points. Non-recurring items were stable in Q3 on a year-on-year comparison. However, Q3 2022 includes an expense of EUR 8.7 million which we made following a jury verdict in a U.S. patent litigation case. This was mainly offset by decreasing IFRS 2 charges relating to vested shares with only slightly increased D&A expenses of EUR 13.6 million, our EBIT increased by 77% to EUR 32.4 million. Net profit increased by 347% year-on-year to EUR 16.5 million in Q3, mainly due to the strong operating performance and an improved financial result.

On a 9-month basis, our net profit increased by 98% year-on-year to EUR 42.9 million. Lastly, and most important, the lower outstanding share count after the completion of our share buyback program had an accretive effect for our shareholders on basic EPS. This increased by 397% from EUR 0.02 to EUR 0.09 year-on-year. The increase from a 9-month perspective was 112% to EUR 0.23.

This time, you only see basic EPS in this slide. Going forward, we will also add adjusted EPS for this chart.

On this slide, you can see that the IFRS pretax operating cash flow was up by 36% in Q3 amounting to EUR 70.6 million. As most of TeamViewer's investments in innovation and partnerships so far are directly expensed in the operating expenses, capital expenditures were relatively low at EUR 3.2 million in Q3 2022. Compared to previous presentations, we added the unlevered cash flow to improve transparency for you. Compared with the prior year quarter, this was 43% higher at EUR 52.6 million.

Decreasing interest cost due to debt repayments had a positive effect on the levered free cash flow. This improved significantly by 49% to EUR 48.5 million. This results in a high cash conversion of 81% in relation to the adjusted EBITDA and 105% in relation to the EBITDA. Lower increase of levered free cash flow on a 9-month basis by 10% is mainly driven by the full consideration of the marketing sponsorships as opposed to last year. Next slide, please.

As the waterfall on this slide shows cash and cash equivalents at the end of Q3 amounted to EUR 89 million. The reduction compared to end of '21 was mainly due to our EUR 300 million share buyback program and debt repayments of EUR 286.1 million, offset by net cash inflows.

I would also like to highlight that we optimize the cash position to minimize our cost of carry in the current interest environment. What you don't see, but still have, is a EUR 300 million undrawn RCF and with Q4, a strong cash-generating quarter ahead of us. Therefore, our financial power remains comfortable. Our net financial liabilities amounted to EUR 546 million as of September 30, resulting in a net leverage ratio of 2.0.

In total, we delivered in capital allocation and significantly strengthened our financial profile through the repayment of debt. Also note that all net securities, which we refinanced in July are now denominated in euro. This exempts us from the risk of adverse currency effects. And on the bottom right, you can find our interest rate structure. In an environment of rising interest rates, we use Q3 to further improve our increased rate exposure for debt repayments and interest rate hedging. TeamViewer's Q3 fixed integrate portion stands at solid 67% now compared to 60% in Q2. This gives us better planning security for the coming months.

To finish this slide, let me just say that for us, it is crucial that TeamViewer remains in a comfortable financially stable position in these volatile times. This is key to maintain our resilience and success over the coming quarters. Next slide, please.

Let me conclude my part of this presentation with a summary of the most important points from a financial point of view. First, we confirm our full year guidance for 2022. While the economic and political situation has been marked by pronounced uncertainties, almost from the very beginning of the year, our business demonstrated its resilience. Thus, we remain confident that we will achieve our full year guidance of billings at around EUR 630 million, IFRS revenue between EUR 565 million and EUR 580 million and adjusted billings EBITDA margin between 45% and 47%.

Second, we achieved good billings growth in Q3 and an effective focus on cross and upselling. This was supported by monetization and pricing measures and U.S. dollar exchange rate tailwinds. Strong customer retention and high satisfaction underscore the quality of TeamViewer's product portfolio. Third, we recorded strong margins and improved the cash conversion. High cash generation and profitability are important levers for shareholder value creation.

Fourth, we will continue to diligently manage our cost base, which is all the more important in the current high inflation environment. And of course, we will also continue to make business-critical investments to fuel our future top line growth.

Fifth, moreover, TeamViewer has a strong financial structure, which was further supported in Q3 by debt repayments, interest rate hedging and in all euro-based refinancing.

Last but not least, both the last quarter as well as the past 9 months saw highly accretive growth of TeamViewer's earnings per share. With that, I will conclude my part of the presentation and head back to Oliver.

[Oliver Steil, executive]

Thank you, Michael, and thank you all very much for your attention. As you know, TeamViewer is a technology-driven growth company, and Q3 showed once again the increasing progress in TeamViewer's ongoing transition towards an enterprise software provider with an industrial offering. We are very well on track in this transition.

Michael, Peter and I will continue pursuing our growth path and transition with full focus. Thus, our priorities are clear: investing for growth to fuel our leading solutions portfolio, maintaining our strong campaigning momentum to grow our business with a high-quality customer base and safely steering TeamViewer to the current volatile environment. And all this while maintaining our high profitability and cash generation. And with that, we look forward to your questions.

[Operator]

[Operator Instructions] The first question comes from Mohammed Moawalla -- sorry from Goldman Sachs.

[Mohammed Moawalla, analyst]

Michael and Oliver, congrats on the good numbers. I had a couple. First one, just to kind of understand what's underpinning kind of your confidence around Q4 billings acceleration. It implies kind of a high teens sort of rate of growth. Is it just the fact that you may have closed some of the slipped deals? Or is your kind of visibility in the Americas improving? And if you could just help us understand some of the levers between, say, campaigns, pricing, the Enterprise would be super helpful.

And then secondly, I know that sort of the focus for you has been stabilizing the business and level setting. Obviously, the leverage has come down. How do you think about opportunities for expansion, particularly using M&A in trying to kind of further accelerate your presence within Enterprise?

[Oliver Steil, executive]

Thank you, Mo. Let me do the first one. So yes, Q4 confidence, I think we're moving into this quarter with, I think, some good visibility on what's happening in EMEA. I think we were very happy with the Enterprise conversion in EMEA. EMEA recorded 13% year-over-year growth, constant currency driven by Enterprise. And obviously, we're now moving into the fourth quarter, which is the most relevant one. And given that our growth is, to a large extent, driven by Enterprise billings, Q4 will play a very important role there.

Obviously, we track the pipeline. We've developed pipeline across the regions with our partners together also with SAP first. Really big quarter with a significant joint pipeline between us and SAP. So there's many good things which we see for enterprise. Obviously, it's not a walk in the park very clearly. We need to convert these deals but I think we're seeing positive trends on this one. However, that's not all. We've also started to do meaningful price increases into our customer base. We were preparing those during Q3 and launched those with the beginning of Q4. Obviously, you have to test and trial and see how sticky the customer base is and how churn impact or how it does impact churn, very positive there. We see very good sticky customer behavior. So we have a good chunk of extra growth that comes from the price increases.

We also see good traction. And I think you see it already in the numbers for Q3 with our dedicated campaigning to move SMB customers to the Tensor product. We make attractive offers there for the clearly better product and better platform that drives more efficiency and is even more secure, both parts very important in the current environment. So I think we have something there which works with our customers. So all of these things coming together gives us quite some confidence that we will get there. Hard work ahead of us for sure, heads down rolling up the sleeves everywhere across the globe to make it happen, but we feel good. And we see that the October was a good start into the quarter. I think that is a consistent development where, if you remember, April start -- first month, second quarter, we felt was weak. First month, third quarter, we saw already a much better start and the same is happening at the moment in Q4. So all of that gives us some good confidence.

[Michael Wilkens, executive]

Mo, let me take your second question. First of all, thank you. We are extremely pleased that we -- into the finish of our share buyback program in Q3, we're able to improve even further on our net debt leverage coming down from 2.1 in Q2 now to 2.0. And we are obviously also very confident that we will be by year-end at around the 1.5 net debt leverage. This gives us obviously lots of confidence and this is also important. With regard to M&A, when you mentioned that, we are right now -- we are, of course, always screening the market. This is our task as the management team to look into M&A opportunities, but we are very cautious right now also given the environment. And here's one personal note, also from my past, we better don't talk about M&A because if you do it with targets, you only do one thing, you increase the price for the target. So whenever there is something, we would come. But right now, we are rather prudent.

[Mohammed Moawalla, analyst]

Got it. Got it. And if I could squeeze one more in, sorry, Michael. Thanks for the added disclosure on the kind of the multiyear billings. How should we think of the evolution of that? I know we don't sort of explicitly model it but I'm assuming that this should become a bigger part of the base sort of going forward and consequently, I know you emphasized the importance of sort of revenue growth going forward. How should we think of perhaps the spread between revenue growth and billings growth kind of going forward.

[Michael Wilkens, executive]

Yes. So on the multiyear deals, and this started last year, as you know. And of course, when you start last year, then this year, you have a ramp-up. And this, for me, is also -- as a newcomer here into this wonderful company, a very important sign of another level of stickiness of the customers, and they are very highly interested been working longer cycles with us upfront. So there's a high commitment of the customer. And I was personally involved also in a couple of deals where we negotiate that with the customer. So that is actually also a pull from the customer, which is, first of all, nice and great for us. I think this is it on multiyear deals, right? So.

[Oliver Steil, executive]

I think balance going forward, it will play a more important role. I think the balance in steering your sales organization is always focused on high annual contract value versus doing multiyear deals upfront. But at the same time, we want strong, sticky customer relationships, as Michael explained. So I think you can expect gradual shift towards more Enterprise behavior. And then when number of seeds, revenue, all of these metrics, net retention rate obviously make more sense than the subscriber count.

[Operator]

The next question comes from James Goodman from Barclays.

[James Goodman, analyst]

Mainly around the multiyear deal development, actually, perhaps I could ask for a little bit more detail there. I mean, so if we break it down, just firstly, are you actually billing the client for 3 years or 5 years of how long these deals are, what's the average duration or is this more of a bookings where you then actually recognize an annual cash flow from these deals? Then just in terms of the right way to interpret, I think, the $12.5 million of multiyear deal billings that you called out on Slide 22. Should we assume that I don't know, 2/3 of that is the amount beyond one year.

And then just in terms of the outlook for Q4, it doesn't sound like it from answer to the last question, but just checking that, that's not a driver of the Q4 acceleration is more multiyear deals there? That's the first question. And then the second one is just a more general question on the cost development. You made some comments around the remix program being completed around needing to hire some people, I think, in R&D. So I wondered if you could give us a little bit more context for how you see the cost base and the employee base developing over the coming quarters?

[Michael Wilkens, executive]

Yes, taking your first question on multiyear deals. So we have both structures. Part of the multiyear deals are actually built in an annual basis. And the other part is built in a total contract basis, but not 5 years, a maximum of 3. That explains maybe this. And of course, multiyear deals is also part of the equation in Q4, obviously. And from the remix program, as I said, we resized the company which meant that you also, in the first half, saw by nature, a lower cost base. And we reinvest now into our growth of the future, we obviously hire in the future, generating units, most, which is sales and R&D and this is where we start to building the FTE basis then.

[James Goodman, analyst]

Okay. So are you incentivizing the sales force, did you say, to sell multiyear deals? Or are you making it equivalent to the annualized deal structure previously?

[Oliver Steil, executive]

No. The incentive system for the sales structure -- for the sales organizations are primarily driven on ACV, clearly. And then it is a customer-by-customer decision whether that makes sense or not. And if the customer wants price guarantee, you can imagine the current inflationary environment, some customers are asking for it, but sometimes it doesn't make sense for us and sometimes it does. But the predominant incentives for our sales force is on ACV.

[Operator]

The next question comes from Gianmarco Conti from Deutsche Bank.

[Gianmarco Conti, analyst]

Oliver, Michael, I have about 3. So the first one is how should we think about the early quarters of next year in terms of your pipeline build and conversion rates. And given you're seeing EMEA performing better, do you expect this to continue into next year? I appreciate -- haven't yet given formal guidance, but just any sort of color around that.

Secondly, could you perhaps share some detail on your upselling campaign? I mean you reported in your CMD, how you wish to convert, I believe if I recall it was almost 20,000 customers to higher ACV buckets. Are you currently tracking how many of these you've managed to convert? And could you share with us sort of like a percentage of completion and expectations into the near future? Is it reasonable to assume similar conversion rates into the next couple of quarters, given the challenge of macro.

And finally, for Americas, do you see this as more of a structural problem or merely macro related from slower sales cycles? And how are you tackling these sort of like longer procurement cycles.

[Michael Wilkens, executive]

Yes. Thank you. Let me start with the first one with your question with regard to Q1. Right now, we have all sleeves up, rolled up to focus on Q4 and delivery Q4. And of course, with the full year numbers, we will, of course, come back to you also with a Q1 and the full year of 2023.

[Oliver Steil, executive]

Yes. So upselling campaign enterprise. Yes, you're right. Capital Markets Day, we were giving this number. We -- at the time, we were showing the number of customers above EUR 10,000, and we were also showing the split of the ACV bucket with like more than 50,000 more than 100,000 more than 200,000. And at the time, we said if we go through our customer base at that time, now, I think it's a year ago now or so. If we go through the customer base, there's at least 20,000 customer names, logos, organizations that are very, very sizable. So big enterprises that would qualify for the same type of upsell cross-sell into the Tensor product and beyond. And I think that's still true. We see that development happening.

As you saw, we have added a couple of hundred or a few more enterprise customers now, a good number of them moved from SMB into the Enterprise bucket above 10k. So in terms of rate of completion, still very low. We still have a very small number out of our 615,000 subscribers, a very small number, which is above 10k, which is a low number again, and we're constantly moving customers up by positioning our Tensor product and more capacity and more functionality.

So it's a very strong movement done by our Enterprise sales people and also inside sales people depending on the ACV cluster and that is going to continue throughout the next quarter because there is ample of headroom left.

I hope that answers that question. And then third question, Americas structure, we don't see any structural issues there. I mean we have a very seasoned sales organization. We work very strongly with partners not only SAP, but also distribution partners. We see a good sales pipeline. But I think what is the case, at least from our perspective, is that the amount of uncertainty in the Americas at the moment in the U.S. is very high. Almost like feuds before the election, people are not moving.

I think it has been something which started to be an issue at the end of Q2 in conversion. A little bit and Q3 was pronounced, honestly, but we don't hear anything about any negative -- negativity about our product solutions, about what we want to do. I was just in the U.S. myself for 2 weeks. And there is interest, clearly, and we have a good pipeline but it's all a bit prolonged at the moment and a bit more difficult. So no structural warning signs, but just short-term timing is difficult there.

[Gianmarco Conti, analyst]

Got you. Just a quick follow-up. What is sort of the rationale then for customers wanting to shift to a higher bucket spend sort of like from the SMB to Enterprise, especially in this environment. I'm just very curious to how the conversations are going, like your sales force approaches to customer and says, "Hey, you guys should shift to Tensor because of x, y and z. But that would be higher spend for the customer. Is it because it's still very, very small relative to the overall budget and that's because of the size of the organization? Or is it because there's some strong selling points that the customers are sort of like seeing value into.

[Oliver Steil, executive]

Yes. I think the key point is, I would say, if you -- and what has been the sales talk for -- since we have Tensor. If you position the Tensor product to a customer versus the kind of normal TeamViewer, every -- almost like -- almost every customer immediately understands that this is the right product. It comes with single sign-on. It comes with extra connectivity to more devices. It allows for connectivity to embedded devices. It comes with the integrations into other software pieces. So it's a much, much broader, more valuable packages also much more secure because of sign-on procedures, but also auditability, the manageability of access rights and so forth and so forth.

So it is clearly the better product. Most of the -- or many of the things we did in the past was price exploration, so positioning that product at a significantly higher price. And now when we talk about dedicated corporate Tensor campaigning, we actually do attractive prices now in the current environment. So customers have significantly more capacity, can connect more, can automate more, can save money, have the better, more secure product and get it at an attractive -- more attractive price points than maybe 2 years ago, and that's why it works.

[Operator]

The next question is from George Webb from Morgan Stanley.

[George Webb, analyst]

Oliver and Michael. And really just keen to your first impressions on the business, Michael may have joined. And also if there's any areas of low-hanging fruit you've seen to drive better internal efficiencies or to accelerate growth.

[Michael Wilkens, executive]

Thank you, George. First impressions, I'm absolutely overwhelmed in a positive meaning about the dedication and the passion of the entire workforce across the globe to get things done, to please and uplift our customers to create customer happiness along the entire product range. And maybe a low -- also a personal note, this company works day and night across the globe. This is really, really impressive. So high level of energy, high level of passion and maybe there's all the time, even in this tricky and difficult times around us to at one point, have a party again, but we wait and see. This is personal note. Second question was, what again George?

[George Webb, analyst]

More interest just any areas that kind of low-hanging fruits or [indiscernible].

[Michael Wilkens, executive]

Yes. Low-hanging fruit, very honest, this company has managed efficiently and effectively on the cost side. There was the remix program, which was rather a rightsizing program than a cost-cutting program. And there are rather, I would say, sleeve elements when we dig into cost and try here and there to manage cost going forward.

To give you one example, we just hedged energy prices. This is obviously important for us. This is helping, but this is not going totally against the inflationary trends. So inflationary trends is obviously also a topic where we have to live with like everybody else.

[Operator]

[Operator Instructions] The next question is from Victor Cheng from Bank of America.

[Hin Fung Cheng, analyst]

I've got a couple. First of all, maybe, should we still expect teens revenue growth for TeamViewer in the medium term as you have stated in the CMD last year? Or should we expect structurally slower growth with the market slowing down? And then secondly, on -- can you provide us some color on monthly active users and the installed base growth for this quarter? And then last one was -- is on augmented reality growth. I think that you last reported it separately last year, but I just want to get some color on how it is growing recently.

[Oliver Steil, executive]

I'm not sure I got the first question, honestly. I hope I got it. You asked for -- let me confirm whether we got it right. You asked for whether we expect top line growth to be rather low going forward? Was that the question?

[Hin Fung Cheng, analyst]

Yes, I mean I think last CMD you talked about your medium-term revenue should be growing in teens, right? And just thinking, obviously, that your transformation a lot of drivers. I'm not sure whether you still think that's the case going forward? Or...

[Oliver Steil, executive]

Yes. Let me take that. Sorry, the teams was difficult to understand. We heard teams maybe -- sorry about that. I don't know. Honestly, first finish the year. This is really important. We have everything focused all in around Q4 and full year. And then we come out and talk with you also about '23.

Second question, monthly active users. We are -- we have been active in monetizing free users, clearly, throughout the year, some good million euro amount that is going to continue. So don't expect significant growth in active users. On the contrary, there's always a dampening effect if we monetize. But also, we are quite restricted by now more and more restrictive towards allowing free users, especially from countries like China and so forth, we've taken out or not continuing the business and also for free users in Russia, Belarus, so there are some significant downward effect weighing on the monthly active users.

But for us, it's also not the key dimension like subscribers anymore because it's -- we do see competitors reporting a very high number of monthly active users, but we also know how hard it is to monetize those. And that's not the business we are in. So we put less emphasis on this one. On your third question, augmented reality. This is clearly not the area which is showing significant growth at the moment. If you step back and if you look at the customer discussions, augmented reality works and converts where it has a direct effect on efficiency and cost savings.

So take the, GlobalFoundries example, which I was discussing, that's the cost saving effect that works. Other augmented reality projects takes longer because they might not be the super immediate must-have efficiency drivers which the Tensor product is. And I think naturally, we see better deal conversion at the moment for classical automation, connectivity to devices, remote first, remote maintenance, remote control and it's a bit more challenging on the augmented reality side at the moment.

[Operator]

The next question comes from Florian Treisch from Kepler Cheuvreux.

[Florian Treisch, analyst]

Maybe as a quick follow-up or clarification on your comment on the recent question. SAP not included in midterm guidance, it's fair to assume that these are canceled and we will get an update with the Q4 on '23 and going forward? And the second, can you provide us some feedback on your announcement to not prolong the Manchester deal from your partner in a way I think it's a very clear sign to them to look for a new partner. Can you actually proactively look for somebody replacing you?

[Oliver Steil, executive]

Yes. Let me come with the first one. Our full focus again is on delivering against our plans, executing the strategy with regard to Q4 and full year. However, there's obviously also a merit in an open debate in the market right now, how meaningful the value of a midterm guidance at all can give -- provide the overall uncertainty in the macro environment. And this is also what we checked with many of our peers, why they don't provide such a view at all.

However, regardless of this question, Florian, there's really no doubt that TeamViewer will continue to be a highly attractive growth company with a strong financial profile and we come out in 2023.

[Michael Wilkens, executive]

Maybe on your second question, interesting one, feedback on Manchester United. Obviously, Yes, you're right. It's a signal. And I think we ever more now working together with Manchester United very closely to make the best out of this partnership. We have a full-time Chief Commercial Officer on board, Peter, who I think you will probably meet in one of the next quarter or so. Of course, he's putting significant effort into this to make that partnership work even better for us.

Clearly, something which Manchester United needs to lean into, which is happening. So that's good. To your specific question, can we look for another partner, no, that's clearly not our business. It's Manchester United's assets. It's a very valuable asset. It's broad brand reach, very attractive platform for us at a moment. We've been talking about the long term at the moment. You also see that the performance is improving and therefore, whatever they want to engage with or work on, it's their decision, not ours.

[Operator]

The next question comes from Andreas Wolf from Warburg Research.

[Andreas Wolf, analyst]

I have one question left. Did you put the same emphasis with regard to free-to-paid campaigns and price adjustments in EMEA, Americas and APAC? Or did you also take advantage from the currency tailwind that was obvious in the Americas.

[Oliver Steil, executive]

No, I think generally approached by -- across the region is the same. You can consider us acting globally in these things. Obviously, in the details, there is country-by-country differences, but that's not meaningful. I mean this is some smaller countries where currency has gone in such a way that we needed to reflect that in our measures. But in general, it's the same approach.

[Operator]

The next question is from Ben Castillo from BNP.

[Ben Castillo-Bernaus, analyst]

Firstly, on the number of Enterprise customers you added 230 plus in Q3, kind of step up from what you saw in H1. I just wondered what proportion of those are net new wins versus migrating customers up to 10 store up for larger contract values. I think you used to break that out, but it seems no longer. And then also just on enterprise ASPs, if I look on Slide 22, since Q3 2020, that was ticking up quite consistently. It seems to have leveled off the past couple of quarters. Could you perhaps just add some color there on to why that's changed and maybe your expectations over the coming years?

[Oliver Steil, executive]

I think number of enterprise customers, a very significant share of this is migration, clearly. That's our kind of upgrading the base by providing the massively better product, which we have been discussing at the beginning. So this is obviously important if we go for a new -- the new logos, then is typically higher ticket sizes that we go for. So it's a mix, maybe fewer new logos, but then bigger versus a lot of migration at the entry level of this. And that's also one of the reasons why on the ASP development, clearly, we had significant inflow at the bottom end, and we're working our way up with those customers and migrate them over time. We have very nice case studies of how we are able to develop customers. So land and expand, land them into Tensor and then work from there. So I think that's a very healthy development.

Obviously, as you can imagine, in the current environment, it's probably not the time to break records on high ticket sizes, new logos with high ticket sizes. This is all a bit more difficult than it used to be some quarters back. And I think that's probably the underlying reason, but nothing structural there, it's just a tougher environment.

[Ben Castillo-Bernaus, analyst]

Understood. If I could just add one quick follow-up, just back on those multiyear deals that you're breaking out now. Obviously, the impact of those has roughly doubled over this time last year. I mean should we be sort of discounting that if we were to remove those multiyear deal impacts from this quarter compared to a year ago? Is that a fair way to look at the billings growth year-over-year?

[Michael Wilkens, executive]

Why would you deduct that? This is part of the equation. And this is, for us, a very important part of the overall basket of our billings growth.

[Oliver Steil, executive]

And secures future revenues, right? So it will positively impact our net retention rate significantly. So it's -- and it's what you do in Enterprise, the more you go into enterprises. That's the way we look at it.

[Operator]

Ladies and gentlemen, this concludes today's call, and you may disconnect. Thank you very much for joining, and have a pleasant day. Goodbye.