TeamViewer AG

XETRA:TMV

Earnings Call Transcript 2020-Q1

[Operator]

Dear ladies and gentlemen, welcome to the TeamViewer conference call for the Q1 2020 results. At our customer's request, this conference will be recorded. [Operator Instructions]May I now hand you over to Carsten Keller of Investor Relations? Please go ahead, sir.

[Carsten Keller, Head of Investor Relations and Capital Markets]

Hi. Good afternoon, everyone. Thank you all for joining TeamViewer's earnings call for the first quarter 2020. Oliver and Stefan will guide you through our results in a minute. As always, following the presentation, we are happy to take your questions.But before we start, I'd like to remind you of the cautionary note regarding forward-looking statements that you can find on Page 2 of the presentation.Let me now hand over to Oliver.

[Oliver Steil, Chairman of the Management Board & CEO]

Thank you, Carsten. Good afternoon to all of you. As always, before Stefan is going to present the, what we believe, are very strong Q1 results in detail, I would like to take you through our achievements during the first quarter, talk about how the measures to contain the COVID-19 pandemic has affected TeamViewer and, of course, our global operations.If we go to Page 4, the mega trends, and how we're positioned. I think as you all know by now, our strategy is really built on the long-term drivers of digital transformation, the connectivity between an -- really ever-increasing number of devices and the fast-growing demand for secure remote management solutions. And during the first quarter 2020, we actually have seen all these mega trends significantly accelerated by the global efforts to fight the pandemic.Clearly, to keep up productivity, businesses around the globe have implemented contingency plans, including remote work setups, now often for their entire workforce and not just for a portion of the people or certain departments. And as we have to continue to live with these distancing measures, I think there will be a higher degree of working from home and digital collaboration will remain the new normal from our perspective. But the reduced mobility not only affects the office environment, clearly, other than in the normal home office discussion, all kinds of services conducted by employees in the field as well as maintenance of distributed operations, technology, infrastructure, all of these parts have been impacted, and companies had to find a way to deal with them, and this makes reliable and secure remote management, augmented reality solutions more business-critical than ever before. So we really believe the pandemic has created an extra push on development that otherwise would have been pursued by companies anyway.So this clearly caused increased demand for these technologies, and we believe that these technologies will help generate efficiency gain in future, and those are required to weather the crisis and to support a global economic recovery. So we really believe what we deliver is key to companies of all sectors and in all countries globally. Therefore, from our perspective, we see TeamViewer in the middle of accelerated mega trends, uniquely positioned to tap into the growth opportunities they present. Clearly, our high-performance connectivity platform is expanding further, serves all sectors, all verticals and all customer segments, as we have been discussing before. Especially our enterprise offering has grown substantially during the first quarter 2020 with more than 300 Tensor licenses sold globally.And despite the global lockdowns to fight the pandemic, our operations have been largely unaffected due to the effective contingency planning that we had, virtual sales processes and, of course, also fast and fully remote deployment of our products so we can really effectively work from home in sales, in service, presales and also in R&D. I think that is very important that we have been able to organize that pretty quickly, and it worked out very, very well. So all of this has manifested itself in significant subscriber base growing more than to more than 400 -- 514,000 now, 75% billings growth, even higher growth in profitability and a strengthened balance sheet, which Stefan is going to cover.As you can see on Page 5, we had significant extra demand in the first quarter of 2020. Billings were up 75% compared to Q1 2019, getting to a level of EUR 119.7 million for the first 3 months. This extraordinary growth was driven by significant extra demand for remote access and homeworking solutions since the outbreak, especially in March, and that resulted in overall very good performance. That came on top, I should say, on to very good performance already in January, February. So even without the pandemic, we had a very good growth in the first 2 months, also a very good traction in enterprise. And then the extra demand in March came on top of it. Naturally, in our business model, these extra billings translate then into extra profitability. So Q1 EBITDA grew by 96% year-over-year to EUR 73.9 million. This is a margin of 62%, 7 percentage point improvement over last Q1's margin, so very significantly.On the back of this accelerated growth, we will continue to invest along our 3 growth initiatives: Strengthening customer segment coverage, use case innovation and geographical expansion. So very much unchanged. We're also screening external growth opportunities through technology-driven M&A transactions or smaller tuck-in M&A in technology areas, which are interesting for us also unchanged to what we've communicated to all of you before. But of course, we had a little bit of time now after the immediate crisis handling to also broaden our scope a little bit and scan the market a bit more carefully. What we would say is that, especially the investments into the enterprise segment are paying off. The key billings driver and it's really an achievement has been a jump for us, especially in larger deals and enterprise customers. So very pleased with that development.When you turn the page, you can see the statistics that we like to show. As a reminder, we like to focus on 2 statistics here. One is the customers with annual contract value above EUR 10,000. Why is that? We, I think, explained that a large portion of our business is driven by our inside sales organization. This inside sales organization in the past, probably a sweet spot of selling contract value between EUR 1,000 to EUR 3,000. Now with the Tensor product, we have really successfully enabled them to also, say, sell bigger-ticket values -- items. And therefore, we see this trend continuing. We had, in the first quarter or at 31st of March, we now had 1,183 customers with an annual contract value above EUR 10,000. That's an increase of 153% compared to end of March '19. And also compared to end of December, that's a 69% increase, where normally, the step-up in the fourth quarter is very strong. Now we had a significant step-up in the first quarter due to the strong start in January, February, but also then the extra demand. So that's very pleasing. That's the one statistics we like to track and show to you. We're also showing here the continued development until the 30th of April, just to give you an idea on how the trends continued into the second quarter.The second statistics we like to follow and track is really the accumulated amount of the top 50 deals, just to really also show not just the broad sales motion for Tensor in our inside sales force but also the success and the traction of our direct sales force in enterprise across the regions, predominantly EMEA at this point in time, but also there, you see that the top 50 deals accumulated contract value was EUR 5.5 million in the last 12 months ending 31st of March, that's a 142% increase compared to last year's March and also 63% increase compared to December. So again, very pronounced effect on the large customer, large ticket size. And while at the end of December, LTM, the range of the top 50 deals was EUR 36,000 to roughly EUR 300,000. We now have a range of EUR 53,000 to more than EUR 500,000. So very significant improvement of the large ticket size, and we're very pleased with that, and we'll continue there.Just to give you an idea, talking about selected deals. You see the deal sizes. You see that it's really cross-sector, cross-geographies, very healthy ACV, license type mostly centered around Tensor, occasionally, also the, call it, old corporate license, quite often a combination with remote access solutions for a larger group of employees for remote management of IT, OT equipment. We also saw good uptake of our pilot product, the augmented reality product that helps to remotely see a few technicians out there in the field. So this is very pleasing to see that we are able to gain traction in all different parts of Europe and U.S. also, although we are slower in building up the enterprise sales force in the U.S., but also this is now working quite well.Maybe to give you some examples, although we cannot give the names of the companies, but just to pick a couple on this page. We have won business with an Italian pharmaceutical and diagnostics company with activities in over 100 countries. They have chosen TeamViewer for remote access to distributed diagnostics equipment located in various hospitals and community health care facilities all over the country. Basically, this allows medical experts to access and review test data, including, but not only COVID-19 testing from any iOS or Windows device, thereby critical support and swift test results can be provided while the risk of infection is reduced, of course, if you don't have to go there, but can do it remotely, and that's a significant advantage. The client benefits from the full Tensor feature sets, of course, including enhanced security, single sign-on, data auditability, central account management. So everything that comes through the Tensor suite. It's 100% GDPR compliant, of course. And this will -- those were all key to win this deal.Another example. In France, the enterprise sales team has done an upselling to an existing client from a TeamViewer core license to Tensor. The company produces a range of self-service kiosks, 40,000 installations around the world. And Tensor not only enables the company to remotely access and support those kiosks. So they access really the kiosk in 80 countries without any human interaction. It also comes with improved security and auditability for high efficiency. So they really moved or changed the process to make much more use of remote capabilities and all of that in a very secure environment.And also, we got a good foothold also in the public sector. I think there was an extra push through corona in the public sector in municipalities and government authorities to think more and fast about digitalization. Here, we had a key win with the European ministry, with over 10,000 clerks and civil servants across the country. TeamViewer deployed instantaneously very comprehensive business continuity solution. So that was really in the moment of tools. When they needed a solution, we immediately bundled the remote access, which is a single-user license for small businesses to work from home into the overall Tensor framework allowing users to access on-premise workstations using their own devices at home. So they didn't have, of course, company devices, so everybody can use its own device to remotely and securely connect into back-end systems, and that's very important if you want to be able to perform your duties, which go, of course, beyond meeting, video collaboration or telephone conferencing, these people have to access back-end systems in order to issue transaction or handle cases, and that's all possible with our solution. So also a very nice win.On this page, as you can see many more examples of TeamViewer connectivity helping customers around the world to digitalize their processes, and we really see this development as a proof for our successful enterprise strategy because that development wouldn't have been possible without the Tensor product. I think as we've explained multiple times, Tensor is really bringing the full manageability of connections -- of connectivity, and that was the moment when enterprises could step more forcefully and broader into our solution, and that turns out to be very successful and is one of the most successful growth initiatives. If we turn to Page 8. I think it's also important to report what have we done in terms of working on our long-term growth initiatives. As you know, we've changed the picture here from the cube to a circle. One big area is customer segment coverage. We have continued to work on this. Clearly, enterprise penetration we talked about. We've also increased the number of channel partners and resellers, which we've added to our business and also we're expanding our global partnerships and integrations. I think we've talked a lot about our integrations -- back-end integration into software, hardware and other technology plays. This quarter, I think, interesting to report is the integration in Microsoft Teams, which we're working on, the integration into Elo, which is POS terminals and also IBM Maximo. So this is the -- that move to be even more relevant to enterprise customers by having the relevant integration.Secondly, very important, drive use case innovation. As you know, we continuously improve our product, and we really try to put the customer at the center of innovation. One thing was that we bundled Tensor with a remote access license, which I mentioned before. So that was the way to really rollout homeworking solution very quickly. Other improvements included the update of Pilot, which is the augmented reality product. We are among the first application to leverage the new iPad Pro LiDAR Scanner, for example, for enhanced accuracy of the distance and the measurement. So that's really if you see a situation through others -- through the camera of somebody else that you have the most exact view of the world around you in order to be able to help that technician in the field as best as possible. And of course, strengthening the innovation and development capacity is anyway a very important focus for us in 2020. And in that sense, we're also screening the market for interesting technology acquisitions. We hired lots of people. We built out our R&D force. It's now 286 FTEs. We also strengthened our IoT team by hiring a new leader and more dedicated sales people.And lastly, the geographic expansion. As you know, we've opened the APAC offices. That continues to be very successful, especially Japan during the recent months has been very good development, but also our U.S. enterprise sales team is a big initiative now. You remember that we said we hired a good amount of enterprise salespeople for EMEA. And we said in the next phase, we will do that also for the Americas, especially the U.S., and we've started to do so and the first people that are on-board are now also being productive and bringing in deals, as you have seen on the list that I showed before.If we turn the page, go to the next, Page 9. I think before I hand over to Stefan, just generally speaking a little bit how we have positioned ourselves in these challenging and uncertain time. I think clearly, first priority for all of us was the well-being of our employees and business partners. That always comes first. And of course, we've implemented very strict hygiene and safety guidelines. This also included very early on a group-wide working-from-home policy as well as travel ban. So we started with travel bans, then we had to put people in the home efforts in China, so Shanghai office. Then the same -- sorry, then the same rolled over into Japan and also Adelaide. And then as the pandemic continued, we were rolling this out across the globe.Clearly, as the pandemic continues, we remain alert, and we adjust our measures constantly. So far, we could largely avoid infections for which we are very grateful really. I think the fast action taking paid off. And it's also, I think, important to see that the organization, our people, employees have done a very, very good job in these very challenging times so imagine, of course, other companies have more hardship to carry than we do, but we had a significant increase in customer requests, both in sales and in service at the same time when we had to send everybody home to work from -- home to work from their computers in all departments. And I think it was significant effort by the company and very high commitment, and that helped us to actually navigate through the crisis quite well with, on the one hand, protecting our organization and our people but also run the business, serve our customers and bring business in really.What was also important, of course, is many customers were turning to us to increase capacity and also many, many free users needed the product to be able to connect? You might remember that very early on, we told the free users that we will be very relaxed in assessing commercial use. In fact, after while we decided to completely allow any personal use and not check whether it could potentially be business use. That has increased, of course, the number of connections, has also increased the load on our systems. So in parallel to everything else, which we had to do, we also have to boost our routing capacity both for the video conferencing part to the Blizz product, but also for the TeamViewer core part, and we've been able to do that in parallel to everything else was going on.We also saw some significant extra requests for our video collaboration product, and we also found basically through personal experience that schools, universities around us are not in a great position to provide for homeschooling solutions, and we decided very quickly to make our Blizz product available for free for schools and university, and we saw a good pickup there. And we would also -- we were also supporting that. In turn, we also had to increase our router capacity.And last but not least, now a bit later in the crisis, of course, in quite some markets, we do see customers having issues with payments asking us for more relaxed payment terms or installments, and we try to be as responsive as possible, depending on market and segments to make sure that we keep our customers happy and adjust our processes to the needs of customers and society. And we hope that with all these measures, we could show to our customers and free users that we do care and that we try to do the best we can to help and, at the same time, run a business and grow the business, of course.And last but not least, of course, thanks to the good start. We build extra cash position. We were able to ramp down the leverage faster than we thought. We further diversified our business, and therefore, we believe we are very well positioned for the year to come and the future. I think all in all, everything we did and everything that happened in Q1 confirms our strategy, gives us confidence that we can overachieve our targets. Stefan is going to talk about it for 2020.And I now like to hand over to Stefan, who will lead you through the financials and the outlook in more detail.

[Stefan Markus Gaiser, CFO & Member of the Management Board]

Thank you, Oliver. Good afternoon to everyone. Clearly, we got off to a very strong start, as Oliver mentioned already. Trading in January and February started very strong and then the corona related lockdown sharply accelerated our billings growth in March, and we preannounced that late March as you surely have seen.So if we move on to Slide 11, the subscriber and billings dynamics in the current quarter or the last quarter. So based on the start, the dynamics Oliver explained, we experienced a significant expansion of our subscriber base, growing by 62% year-over-year, and we now have more than 0.5 million subscribers, 514,000 in total. So since the end of last year, we added, on a net basis, more than 50,000 subscribers net of churn. And those subscribers really joined us from all customer segments in various sectors, which in the past, we were somewhat under-penetrated, including larger government bodies, financial institutions and the likes. So really a very broad customer win across the globe and across all segments.As we explained, the enterprise offering was clearly key to the success in Q1, and it allowed us to serve our customers with the required very scalable solutions and, therefore, was a key billings contributor in the quarter. Those new accounts will also provide us with a significant cross and upsell opportunity going forward. And as you can see, we also maintained our very good high single-digit churn rate of the 317,000 subscribers that we had a year ago. We retained more than 90% or 290,000, 289,000 subscribers. So if we move on to billings. Clearly, the new subscriber growth, the strong new subscriber growth, coupled with the extra demand for remote access and working-from-home solutions led to this exceptional billing growth of 75% to EUR 119.7 million year-over-year. We recorded nearly a doubling of new license subscriptions in the first quarter to around 42 million. And we also still successfully migrate the long tail of our previous perpetual customers. But as expected, this is now fading out, but overall, still a nice contribution of EUR 3.5 million. Renewal billings, which includes additional capacity sales are more than 100%, contributing to our significantly increased net retention rate of 106% at the end of Q1.And if we move to the next slide to provide billings breakdown by regions. Again, a very balanced picture. All regions have contributed significantly and showed a very strong acceleration during the quarter. Americas leading the field again with 82% growth followed by EMEA and APAC. APAC was 62%. We talked about APAC for quite some time and also about our investments in those local markets. I think it's very satisfying to report that we had an exceptional month in Japan in April with the full lockdown effects. We experienced significant growth in April in that location or in that country. We also sorted our investments into sales resources across all regions and go-to-market routes clearly contributed to success. Having sufficient sales capacities to deal with all of the customer requests was clearly a key success factor. All sales channels contributed equally strong. Clearly, the increased inside sales teams, which we expanded in EMEA, but also in the U.S. also, the enterprise teams in Europe, the recently ramped up team -- enterprise team in the U.S. and APAC and also channel partners performed extremely well under those remarkable circumstances. Once again, I think having local people on the ground and the ability to act fast was really very important. And I would also like to take this opportunity to thank our employees from sales to customer satisfaction as well as R&D, IT, HR, G&A, who were under severe stress in those times, but they still were able to cope with all of the additional customer demand and the load in our systems. So big kudos to the teams. Fantastic team effort really. And this additional demand from the existing subscribers is also the key driver behind the substantial increase of net retention rates now up to 106%, as I mentioned, due to the strong upsells driven by higher capacity requirements. The churn numbers -- local churn numbers have remained largely stable, but obviously, we are closely observing the situation to assess the impact of the corona-related economic hardship on our customers and how their renewal business might be effected with us. The dollar value churn remains very stable.Let's move on to next slide, covering the full picture of our Q1 performance. Q1 felt a little bit like a stress test regarding our ability to deal with unprecedented circumstances, and I'm very glad to report that apart from some glitches here or there, we were able to adjust really, really quickly. And the very strong growth in billings in combination with the scale effect across all functions and our efficient go-to-market model led to this exceptional growth of 96% in adjusted EBITDA to EUR 73.9 million compared to EUR 37.7 million in Q1 2019. I think the scalable technology platform, it was great to see how it was able to deal with the significantly increased traffic and actually, thanks to our R&D and IT departments who made sure that we added enough capacity in a very fast time. We've been able to deal with the significantly increased load on the systems. Our GP margin slightly increased to 93% already. They were already pretty high in the past, even higher in this quarter. That being said, investments into additional routers and infrastructure will mean that the GP margins are expected to revert to the usual 92% rate for the remainder of the year because those new router costs really start kicking in, in our run rate for the rest of the year. And the other SG&A costs while significantly increasing, absolute terms decreased as a percentage of billings across the board, and therefore, the adjusted EBITDA margin also increased substantially from 52% (sic) [55%] to nearly 62%. I think we told you a few times that we continue to invest substantially across all functional areas, clearly with a higher focus this year on R&D and product innovation. And to this extent, I'm super proud to say that we've been able to sign up more than 300 engineers in total now, so up like 30, 40 additional engineers on board now, significantly up compared to last year quarters. We clearly accelerated our hiring across all functions. Besides that, our enterprise team in the U.S. has also gained some critical mass. I think we have now about a dozen sales reps who joined us the last few months, already showing some billings in the last quarter. Overall sales headcount is up by close to 50 FTEs across all go-to-market routes and sales channels and geographies, but we clearly also invest in other key areas like marketing, customer service and infrastructure as well as G&A. So reaccelerating all of the investments to capture the market opportunity. And based on this, the run rate effect of those investments and our continued capital allocation we basically expect the full year EBITDA margin to be around last year's level or slightly better, but not at the exceptional levels seen in Q1 2020. Let's take a look at the next slide and our cash flows. The quality of our earnings remain very high, and we had a very strong quarter in terms of cash generation. Adjusted EBITDA of EUR 73.9 million, plus a positive change in working capital and CapEx in line with our guidance resulted in this very strong cash conversation with a pretax free cash flow of EUR 72.4 million versus EUR 33 million in the prior year, so more than doubling. Maybe on Capex, an extended note here -- remark here, remember that EUR 25 million of planned CapEx for 2020 includes 2 one-offs -- both one-offs account for roughly EUR 16 million of total CapEx spend. One one-off is basically the new accounting, CRM and e-commerce front and the new headquarters across the street from our current headquarters here in Göppingen. Thankfully, both projects largely continue in line with our planning, but also suffer from corona-related delays. We decided to push out a rollout of the ERP migration because taking a step back, doing the ERP migration, whilst you're in the middle of a peak billings time, that doesn't feel like the right thing to do. So we decided to push it out a little bit, therefore had to extend the project time line to reflect the current circumstances. Regarding a new building, very happy to report that it seems that we should be able to move into those new offices during Q3, but also slightly later than expected. Because clearly, the construction side also suffered from some corona-related delays and less workers on the ground there. So therefore, we expect CapEx to be somewhat above the initial guidance and more in the range of EUR 25 million to EUR 30 million versus the EUR 25 million we expected a couple of months ago. And finally, let me comment on all of us comments regarding the data management. We clearly acknowledge that many of our customers experienced very difficult times with significantly reduced revenues and significantly reduced cash reserves. And in light of this, we have also relaxed our cash collection efforts and how strict we are in terms of dunning and shutting off services. Despite this, I'm very glad to report that as per today, we basically already collected a very significant amount of our Q1 billings of close to EUR 120 million. So the remaining exposure is very, very limited regarding our Q1 cash collection. While talking about cash, let's move on to the next slide on net debt and the leverage. Balance sheet has been strengthened significantly. Deleveraging is ahead of plan. Net leverage has now fallen to 2.4x EBITDA by the end of the first quarter due to the strong cash collection and continued EBITDA growth. We delivered now 1.3x over the last 6 months, so very strong and accelerating deleveraging. We have cash of EUR 105 million on the balance sheet. RCF remains undrawn, so very healthy situation. And the continued substantial cash generation for the remainder of the year will basically mean that we can reconfirm our leverage -- deleveraging plans for the year, and we expect to be significantly below 2x by the end of 2020. And with that, I would move on to our increased and revised guidance on Page 16. So in summary, our market positioning, our product portfolio and the scalable business resulted in an exceptionally strong performance in the first quarter. April continued to be strong albeit the COVID-19 driven demand softened later in -- during April. But nevertheless, a strong trading during the first 4 months supports our confidence in overachieving the original full year guidance. That being said, I think we should keep in mind that the continued macroeconomic uncertainty clearly reduces visibility for the remainder of the year. On this basis and provided that we see a certain general economic recovery, we have raised our outlook for the full year 2020. The new targets are basically billings of around EUR 450 million, up from EUR 10 million to EUR 20 million or up EUR 10 million to EUR 20 million from EUR 430 million to EUR 440 million. That was the old billing spent was now to around EUR 450 million, and revenues of at least EUR 450 million, so in line with billings, previously revenues were guided towards being lower than billings, but due to the significant first quarter billings intake, this will result in higher subscription deferred revenue releases before year-end. And therefore, we have increased our revenue guidance of at least of up to EUR 450 million. And on adjusted EBITDA, I talked about our investments and what this means going forward. And therefore, we expect an adjusted EBITDA margin of around 56%.And I think that concludes our presentation. We would open the lines for any questions.

[Operator]

[Operator Instructions] The first question we received is from George Webb of Morgan Stanley.

[George W Webb, Equity Analyst]

I've got a few questions, please. Firstly, in terms of what you saw in Q1, it looks like you added EUR 42 million of new subscription billings in the quarter. How can we think about the phasing of that by month? Would a pattern of EUR 10 million, EUR 10 million and EUR 20 million in March be broadly representative of what you saw? And linked to that, when you talk about some softening in April, how far through the month was that? And would the reduced level of COVID-19-related demand still significantly above the run rate of January and February? And then lastly, in terms of Tensor, has there been any change in the breadth of your large enterprise sales in terms of the penetration into whether you're selling to a specific department? Or are these now higher-level discussions in these businesses?

[Oliver Steil, Chairman of the Management Board & CEO]

Should I take the first 2 ones and you take the Tensor ones.

[Stefan Markus Gaiser, CFO & Member of the Management Board]

George, thanks for the question. It's Stefan speaking. In terms of the new billing split, it's actually not a bad assumption. Clearly, I think we told you that in Q1, we got off to a very good start. And if you take our new billings over the past year and the pattern, we typically range ahead about EUR 8 million to EUR 9 million in organic billings, that's new and upsell billing. So I think your overall split of EUR 10 million, EUR 10 million, EUR 20 million is not that bad. And then in terms of April, how April compared to January, February. Clearly, April -- beginning of April especially was significantly better than January, February. Still seeing some customer demand to basically enable the operations to work remotely. That then faded out, but more in the second half of April. And then in the second half of April, Japan also contributed very strongly. And now I think as of May, we are back to more normalized billings level.

[Oliver Steil, Chairman of the Management Board & CEO]

Yes. Maybe on Tensor, I'm not sure I fully got the question, but kind of the type of discussions we have, I think it's fair to say that over the course of the last quarters, we have elevated the level of discussion and the breadth of the discussion across companies. So if I go back at the first quarter, very different types of discussions of our nature. So we have the very technically-oriented solution for field service enablement based on TeamViewer pilots, which is primarily with the operations department, field service department, of course, supported by IT. We also have that for the retail organization for warehousing in other companies. So really function by function, broad-level discussions, but we also have C-level discussions, of course, where there is a broader deployment of TeamViewer for different use cases. The largest customer win we had at the beginning of the year already was something like this. You can think of it like an enterprise license agreement where the customer has the right to use TeamViewer for almost any workplace or any employee in different departments. When corona came when it was imminent, it went all the way to, frankly, emergency calls, e-mails by C-level to our C-level sales or myself asking for a broad-based remote access, employee homeworking solution across the company where they figured out that they work VPN based, but that's not secure enough, not fast enough, not flexible enough, and doesn't enable enough employees to work from home and have access to the back-office functions. That also happens. So I think we really -- with the Tensor product, we are in the right spot of the right discussions, which doesn't mean that we're not also selling Tensor, smaller tickets, EUR 15,000 departmental still happening, but more and more, we are in broad C-level discussions.

[Operator]

The next question received is from Mohammed Moawalla of Goldman Sachs.

[Mohammed Essaji Moawalla, Equity Analyst]

Two questions from me as well. First, just in terms of sort of your caution in terms of the sort of reduced visibility, can you help us sort of frame that between what element of sorts of demand you saw in sort of March and April or the sales you generated was sort of poof? Or is it caution around perhaps some of the kind of SMB customer base? I know you alluded to sort of payment terms, but do you think there's a sort of risk around sort of churn rates sort of later in the year because of sort of business failures, but just maybe help us kind of quantify or further kind of clarify that sort of conservatism in the guidance?And then secondly, it was nice to see the net renewal rate tick up. Could you give us a sense of what are the kind of use cases? Or what are they kind of cross-sell and upsell? I know deal sizes have gone up in enterprise, but any other color around what's driving that uptick in renewal rate, and how sustainable that is would be helpful?

[Stefan Markus Gaiser, CFO & Member of the Management Board]

Sure. So let me start with the first one. This is Stefan speaking. In terms of whether the new guidance is conservative or not, I think the key topic is clearly the decreased visibility or the limited visibility for the remaining 7.5 months. I think the year still has quite a few months ahead. And I think it's fair to say that probably this remainder of the year feels less secure and visible than at the same time of the prior year. I think nobody knows at this point in time, how severe and long the economic recession will be. And that's very tough to quantify, frankly. So -- but if we take a step back, what we've basically seen is we've now significantly outperformed our first quarter by probably EUR 20 million, give or take. We'd expect the growth to be anywhere between 30% and 40% in any given quarter. Now we have 75%. In absolute terms, it's around EUR 20 million. And we now increased our guidance by, if you take the previous midpoint by EUR 15 million, which basically indicates to the market that we expect a substantial amount of outperformance in Q1 to remain for the entire year, and we basically expect that trading for Q2 and Q4 to be in line with past trading, i.e., around a 30% growth. The EUR 20 million outperformance, we certainly also include some amount of demand, which has been pulled forward. That's hard to quantify. I think you can only quantify that [indiscernible]. So that's going to be tough for us. We have assumed that our cross churn rates remain fairly stable. As you know, Q4 is a big renewal quarter for us. So far, we have seen dollar churn exactly in line with past trends. So our assumption includes that this is the case going forward. We just don't have enough data points if the churn remains at that level or changes. So that's basically the key foundations for our guidance for the year.

[Oliver Steil, Chairman of the Management Board & CEO]

And then maybe on second question more upsell, cross-sell, net retention rate, what happens more, generally speaking, I think very much differed by company type. I think the classical situation was that either new customer but often in this space of net retention, existing customer that will come to renewal at some point or is already a customer for a long while, basically go through the employee base, works through the emergency planning, tries to understand how many people potentially could work from home or from remote locations, and how the new set up should look like. And then calling us to understand how much more or to ask for more capacity. That could be the old corporate pricing world where they need more channels because they want to have more parallel connections at the same time to a smaller percentage. The biggest percentage was Tensor-based, more users and then when they go into more adjacent business functions. So for example, remote management, they wanted to have an extra remote management license to be able to remotely control and manage OT and IT equipment. Some companies needed Pilot license or wanted the Pilot's license because they also wanted to enable field first, field service better, maybe the first time or maybe better enabling the field service to work -- to be supported by somebody else or support customers. So then they went for the Pilot license. Some companies tried or wanted to add meeting -- the usage of meeting into the bundle and the license they had because they wanted to significantly step up the use of TeamViewer meeting or Blizz, and therefore, have increased the license. So different pieces that either resulted in upsell of just more people, more channels, more capacity or also adding new types of licenses in the cross-selling. I would say that the product that, of course, naturally got less attention during the crisis time was the IoT arena, with new IoT project, new proof of concepts. I think on this one there, not much was happening, same level of activity than before, but no step up, I would say.

[Operator]

Are your questions answered?

[Mohammed Essaji Moawalla, Equity Analyst]

Yes.

[Operator]

Okay. Then we take the next question. It's from Sven Merkt of Barclays.

[Sven Denis Merkt, Equity Research Analyst]

Firstly, you mentioned you have been more leaning around the free to paid conversion. Do you expect this to lose support out of your growth or at least kind of a set potentially if there has been a pull forward of revenues? And then secondly, based on what you're seeing in the competitive -- how you see the competitive environment evolving, I mean there's a bit increase in remote working. They are now potentially more competition entering the market. Is that something that you're seeing? And then also, have you seen competitors being more aggressive in their marketing and customer acquisition spend? And is this impacting you at all?

[Oliver Steil, Chairman of the Management Board & CEO]

Yes. I can take that. So free to paid conversion. I think if you look at how we run our business, typically, is that there's always a significant -- or not a significant. There's always a certain portion of free to paid, where we used our algorithms in the back and to understand whether the usage and connection behavior of users, free users, does actually look like personal use or looks more like business use, and then we prompt these users to pay for a license. And first, we remind them, and then we remind them a bit more forcefully and at the very end of the chain, we might also block them from using the license if we have very strong indication that it looks like commercial use. We have done nothing of this over the last, I think, almost like 2 months now or so. We started in China when this came up, and then we were basically rolling out the same way of not executing these policies across the globe.And this is still the status we are in at the moment, except for some very small startup testing in China because China is arguably be through the crisis. So that -- having said that, of course, the additional usage during corona leads to growth of the ecosystem, more activity in the ecosystem. And the way forward, I would describe is what would happen is either the company, then over time, the company over certain employee buys the license, enables their employees to work from home and such that this personal user would actually become a business user but under the license of the company. So that's one case. And the other case is that, that personal user continues to regularly use the product, and we are behind the corona crisis. And if that continues behind the crisis, and I think at some point, we will have the opportunity to also ask that user to pay for a license, but that's still some time out. I would say it's never bad if you have a growing ecosystem, and it's also not bad that if remember in the past, EUR 15 million to EUR 20 million maybe of our billings were generated from these free to paid conversion. We haven't done almost any of this during this year. And from our perspective, that's a good thing.Secondly, competitive environment, do we see more players? I think there is more competition, especially in the video collaboration space. I think the fact that so many people were leaning towards Zoom with all the discussions around Zoom, I think that has generated quite some interest from Microsoft and others to actually go more forcefully into this segment. I wouldn't say that we see increased demand in our core segments, remote control, remote access, remote monitoring, there have always been different solutions. We strongly feel that we have an extremely capable solution, very versatile that can cope with very heterogeneous environment. That proves to be the case. I think we have heard many customers that told us, I have something, but that's not good enough. I need more. I need a better solution, I need a more ubiquitous solution. So in that sense, competition is the same as before. Every now and then, I think there was a bit more noise, I think, especially in the U.S., the U.S.-based players, I think, made quite some noise around offerings for free, promotional for free, which maybe had an impact here and there, but not really noticeable in our numbers because we were actually growing, as Stefan said, across markets very successfully.

[Operator]

[Operator Instructions] And the next question is from Stephan Klepp of Commerzbank AG.

[Stephan Klepp, Head of Small and Mid Cap Research]

I just wanted to -- if you can talk us through the quality of clients that you gained, particularly in March and beginning of April. Is it actually the client that you're targeting also going after big enterprises and IoT, you have to sell that IoT is not really much happening. So in other words, should we be afraid that these clients just look for a tool that they can use not to go into the office, and we see cancellation rates increasing at a later point in time? And secondly, I'm surprised to see that you're only guiding for a margin of 56%. I heard you what you said, obviously, that's all clear, but implies a margin down to 54% for the rest of the year despite economies of scale. So can you basically be more precise what you expect to invest into that the margin quality deteriorates slightly?

[Oliver Steil, Chairman of the Management Board & CEO]

I take the first one, and then Stefan goes to the margin. So quality of clients. I think I would really say it's a very, very healthy mix of clients we would expect. So I wouldn't be afraid of later cancellations. I mean, of course, there's always certain cases in certain circumstances where there's an emergency deployment and then people change their mind, but I think from a mix sectors, functions, what customers have been asking us for, I think we have a good mix, and I wouldn't be worried about this one.

[Stefan Markus Gaiser, CFO & Member of the Management Board]

I would actually say that the customer mix in March and April was potentially more geared towards larger enterprises.

[Oliver Steil, Chairman of the Management Board & CEO]

Yes. It was a bit to larger companies, generally come with lower [ churn rates ], I should say, yes.

[Stephan Klepp, Head of Small and Mid Cap Research]

So does that mean that, for example, people looking for just a simple tool would have gone to cheap competitors like any AnyDesk or something like that where licenses are even cheaper and just give a quick fix? And so they should have seen the lower quality part of the market to come? Or is it wrong to addressing that?

[Oliver Steil, Chairman of the Management Board & CEO]

I wouldn't -- I can't comment on those, frankly. I think what we see is that the people who are asking for our solution have typically understood very well where the complexities are, and what the limitations of existing solutions are. So I mean, the example of a CIO of a big bank understanding extremely well what contingency planning they had. You can imagine banks have significant contingency plan, but understanding immediately, okay, I can only enable so many people limited to these functionalities, and I have the following security problems, I need something which is more capable. It can run in parallel or in addition to my VPN setup, but I need something which helps me for more employees more access and also to troubleshoot my other solutions, and also to cope with bring your own devices situations, for example. And that's actually pretty complicated. And we were immediately in the middle of security discussions, architecture, Tensor, managed connectivity and so forth. And I cannot see how cheaper solutions can handle that. And that's why I'm also very confident that these people will stay because they've gone through the exercise. If it were so -- if it would have been so easy, they would have just done something else, but it's not. So that's maybe -- and then margin, Stefan?

[Stefan Markus Gaiser, CFO & Member of the Management Board]

Yes, maybe on the adjusted EBITDA margin guidance, I think it's important to understand that this margin guide is unchanged from our guidance beginning of the year, depending whether you take midpoint or higher end, but it's largely unchanged. Now clearly, Q1 margin was significantly better, but if you take a step back, we basically -- that the new revised billings guidance implies billings growth for Q2 through Q4 of just below 30%, 28% or so. So somewhat lower billings contribution for the remainder of the year. And if you then take a look at our cost base and the continued investments into, especially R&D, but also enterprise sales, you should assume a slight increase in cost base. And if you add this up, then you basically arrive at our adjusted EBITDA margin of around 56%, maybe slightly better, but really, the margin guidance is completely unchanged. And I think we always said that, yes, margin might increase over time, but if we see opportunities to capture additional market share or accelerated billings growth, then we would go after that. So very consistent with our past guidance.

[Operator]

[Operator Instructions] And the next question is of Miro of JMS Invest.

[Miro Zuzak, Investment Professional]

The first one is your new license, the office license was just roughly 1/3 of the price of your standard license, otherwise, which was introduced during March. How was the pickup of this license? Could you give us a number there in terms of how many licenses you already have? Then the second one would be the FX loss that you have shown, could you shed some light on how this will develop during the rest of the year?

[Oliver Steil, Chairman of the Management Board & CEO]

I'll take the first one. So I think there's a misunderstanding. The remote access license was built, I think, more than a year ago, and that was a single user license effectively for a limited number of end points to enable SoHo users to access another computer effectively. So what we did now is we've taken that concept. So one user being able to connect to a limited number of devices, and we bundled that into the Tensor architecture, which comes with full manageability, connectivity and so forth. And that solution was then sold to enterprises that used that as full-blown, call it, homeworking or remote working wherever you are a working solution. And that Tensor piece got a significant share, I wouldn't know the exact number, but that was, of course, a very attractive offer that we gave to the market, but it's -- the pricing is a customer-specific pricing. It's not the pricing that you would find on the list price if you go to our website because that website is a single-user product. We have actually bundled that into a Tensor bespoke pricing scheme.

[Stefan Markus Gaiser, CFO & Member of the Management Board]

And then with regard to your second question, the FX loss, I guess you're referring to the unrealized FX loss in the P&L, that's solely relating to our debt structure, a significant amount or 80% of our debt is denominated in U.S. dollar. And as the U.S. dollar strengthened slightly over -- in the last quarter, we realized -- or we had to account for an unrealized FX loss. So EUR 8 million of that, obviously, clearly, if the U.S. dollar remains at the current levels, we would have that EUR 8 million as an unrealized FX loss for the remainder of the year, but if it weakens or strengthens, that might move up or down, but it has no cash flow impact. In fact, it's also the hedge for our U.S. dollar-denominated EBITDA, which is quite significant. That's the reason for the U.S. dollar-denominated loan.

[Operator]

And we received a follow-up question of George Webb of Morgan Stanley.

[George W Webb, Equity Analyst]

I've just got a couple of follow-ups. I mean, firstly, you mentioned screening for tech acquisitions. Is that when you look at your portfolio of products thinking there's a gap we need to fill within the existing products we have? Or is that more looking for which products or what sort of technologies could we introduce to our broad user base and device space and cross-sell? And then just secondly, in terms of just G&A expense in the quarter, that did pick up quite significantly even over Q4 of last year. Is there anything in particular we should be thinking about for that?

[Oliver Steil, Chairman of the Management Board & CEO]

Yes. First question, for tech acquisition, I would say, it's really both. Of course, we have the platform, and there might be adjacent tuck-ins offerings, which would make sense to extend the platform and offer the whole range of services to our customers, be it SMB or enterprise could very well be, but also the other piece, of course, which is we have something, for example, AR pilot and we have significant development resources there, and we continue to innovate with the example, the LiDAR technology that we're now using, but we find a team that could significantly accelerate our efforts in a certain space, and that could be equally interesting. So both is true. But again, early stage, more in screening mode, I'd say. And the G&A question, maybe, Stefan?

[Stefan Markus Gaiser, CFO & Member of the Management Board]

Yes. Maybe on G&A, I think the increase in G&A compared to Q4 base reflects the continued investments into IT security, GDPR, the whole compliance functions. So you might have read some announcement that we have strengthened our legal team. We appointed a new CCO. So very significant investments into that, as we talked about in the past, and that drove up the run rate, but it's very good investments overall. And then secondly, clearly, Q1 with this level of performance, the channel accrual levels of [indiscernible] and certain one-offs for our C-set operations and the likes increased significantly.

[Operator]

As there are no further questions, I hand back to the speakers for some closing remarks.

[Carsten Keller, Head of Investor Relations and Capital Markets]

Thank you very much for joining. Thank you very much for your interest. And I think we will be on the road virtually over the next couple of days. So we look forward to speaking to you -- to many of you. Thank you very much.

[Oliver Steil, Chairman of the Management Board & CEO]

Thank you.

[Stefan Markus Gaiser, CFO & Member of the Management Board]

Thank you all. Bye-bye.

[Operator]

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