TeamViewer AG

XETRA:TMV

Earnings Call Analysis

Revenue and Earnings Growth, Strong Cash Flow

In 2023, the company's revenue rose by 11% to EUR 627 million, with an adjusted EBITDA increase of 13% leading to a margin of 42%. Billings grew by 9% on constant currency to EUR 678 million, meeting the guided range. Levered free cash flow surged by 16% to nearly EUR 200 million, and adjusted EPS saw significant 31% growth due to effective capital allocation and share buybacks. The SMB segment posted a 6% revenue increase in Q4 and 8% year-on-year, while Enterprise revenue jumped by 19% in Q4, culminating in a 24% rise for the year driven by a broadened customer base and strong billings growth.

Strong Financial Performance and Strategic Initiatives Boost TeamViewer's Prospects

TeamViewer closes the financial year with robust results, surpassing targets and displaying the strength of its diversified business model across customer segments and geographies. The company's revenue escalated by 11% year-over-year to EUR 627 million, with an adjusted EBITDA margin of 42% exceeding guidance. Simultaneously, the basic earnings per share (EPS) saw a remarkable 81% jump from the previous year.

Accelerated Enterprise Growth and Regional Successes

With a 23% year-over-year growth in constant currency billings in Q4, the Enterprise business ended the year on a high note, thanks to partnerships with major players like Microsoft, SAP, and Siemens. The Americas region, in particular, showcased a return to double-digit billings growth, indicative of reorganization success. To further capitalize on the digital industrial transformation, TeamViewer strategically invested in smart factory pioneers Sight Machine and Cybus. Shareholders saw their commitment bolstered by a new EUR 150 million share buyback program to be completed by the end of 2024.

Regional Performance and Targeted Investment

TeamViewer reported strong regional performance across the board, with the Americas leading revenue growth at 12% for the year, EMEA up by 10%, and APAC growing billings by 14% on constant currency. The strong enterprise deals and remarkable pipeline conversion underscore the company's capacity for capturing diverse industries through new and expanded use cases.

Cutting-edge Technological Collaborations

A collaboration with Siemens introduced a synergy between Siemens' digital twin technologies and TeamViewer's spatial computing capabilities, facilitating high-quality remote training and onboarding on a global scale. Furthermore, the launch of a new spatial support app aligned with Apple's Vision Pro headset marks a significant development in the immersive experience industry.

Financial Outlook and Growth Strategy

TeamViewer is optimistic about its financial outlook for 2024, projecting revenue growth between EUR 660 million to EUR 685 million and aiming for an adjusted EBITDA margin of at least 43%, even amid expected FX headwinds. Levered free cash flow is anticipated to grow around 12%, similar to 2023's strong performance. This outlook is based on a strategy that includes reinvesting in marketing, sales, and R&D, especially in the first half of the year, while expecting to realize savings in the latter half.

Robust Cash Flow and Increased Shareholder Value

The company has shown an impressive ability to generate cash, with levered free cash flow expanding by 16% to nearly EUR 200 million and a high cash conversion rate reflecting a solidly cash-generative business model. The debt management strategy has also been effective, with share buybacks reinforcing shareholder value and the reduction in leverage ratio to 1.8%. As the leader in the Enterprise and infrastructure sub-industry in ESG risk ratings, TeamViewer is committed to sustainable operations and efficient capital allocation to enhance long-term shareholder value.

Looking to the Future with Confidence

With a financially successful year and a buoyant final quarter behind it, TeamViewer steps into the new fiscal year with confidence in its continued growth, improved margins, and strong cash generation. The company reiterates its intent to invest in its business while optimizing operations to build a sustainable foundation for future success.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the TeamViewer SE Preliminary Q4 Full Year 2023 Results Call and Webcast [Operator Instructions].I would now like to turn the conference over to Bisera Grubesic, Vice President, Investor Relations. Please go ahead.

[Bisera Grubesic, executive]

Thank you, operator. And good morning, everyone, and welcome to TeamViewer's Preliminary Q4 and Full Year 2023 Earnings Call. My name is Bisera Grubesic, and I have joined TeamViewer as Vice President of Investor Relations only last week, so at the beginning of February. And I would like to take this opportunity to emphasize that I am looking forward to engaging with all of you present in today's call, of course, but also further strengthening TeamViewer's relationship with our investors and analysts.I am sitting next to our CEO Oliver and CFO Michael who both will update you on our business and financial performance 2023, and will also provide you with the outlook for 2024. And as always, the presentation will be concluded by a Q&A session.Now, a note on some important notice. Please note that you can find the important notice and the APM disclosure on Slides 2 and 3.And with that, I hand it over to Oliver to kick off the presentation.

[Oliver Steil, executive]

Thank you. Welcome, Bisera. Very glad to have you on board. Good morning, ladies and gentlemen. Warm welcome to our preliminary Q4 full year 2023 earnings call. Let's jump straight into our highlights on Slide 5. Overall, we are concluding a very successful year with strong momentum in Q4. We achieved results at and above our targets. And furthermore, we once again proved the strength of TeamViewer's business model with its broad diversification across customer segments, use cases and geographies.Let me start with a look at the 2023 financial year. Our revenues saw double-digit growth with 11% year-over-year to EUR 627 million, and adjusted EBITDA grew even stronger by 13%, and this resulted in an EBITDA margin of 42%, which exceeded our guidance. On the back of our continued share buybacks, we were able to significantly increase our basic EPS by 81% year-over-year.Looking at the fourth quarter, our billings exceeded the already very strong prior year quarter, with an increase of 8% on constant currency. This strong momentum in Q4 gives confidence in our ability to perform and execute in a back-end loaded Enterprise software environment.Speaking about the Enterprise business, we saw a good momentum in the fourth quarter. The successful conversion of our pipeline led to a 23% constant currency billings growth year-over-year. This success is important as the rest of the year was a bit weaker in terms of Enterprise growth. Especially in the fourth quarter, our partnerships with Microsoft, SAP and Siemens paid off and contributed strongly to our Enterprise business.Moreover, I am particularly pleased that the reorganization in the Americas region is showing tangible results now. In the important fourth quarter, the region returned to double-digit billings growth, the strongest growth of all regions from a quarterly perspective. This was driven by convincing deals in the Enterprise space as well as good web shop results. At the end of 2023, we doubled down on our commitment to the digital transformation of the industrial working environment by strategically investing in Sight Machine and Cybus, 2 pioneering companies for smart factory solutions. We are ensuring that TeamViewer is at the forefront of the convergence between Information and Operational Technology.Last but not least, we are long-term committed to shareholder return. In the fourth quarter, we launched a new share buyback program with a total volume of up to EUR 150 million until the end of 2024. We want our shareholders to participate in our highly cash-generative business. The program is scheduled to be completed within 2024.Summing it up, we are very pleased with our 2023 performance and the strong year-end finish. And we are succeeding in our core business, benefiting from our strong partnerships in the Enterprise space and strategically investing in new areas such as smart factory.Let's now take a closer look at our SMB and Enterprise billings split over the last 12 months. You can see that the SMB business in the higher value bucket with contract volumes between EUR 1,500 and EUR 10,000 experienced the highest growth rate with an increase of 14%. Last year, we had put particular focus on improving and developing our SMB product and third-party integrations. This enabled us to expand existing customer contracts, win new business and assert ourselves against competitors. In addition, monetization campaigns and continuous improvement of the web shop experience supported SMB revenues.And looking at the Enterprise business, the highest bucket with contracts above EUR 200,000 recorded the strongest increase with 22% within the last 12 months. And this is a very encouraging development compared to the levels we have seen at the beginning of the year. It also shows that while our Enterprise business is supported by upsells from the SMB segment, we are closing a significant number of large deals independently. Pipeline conversion has been particularly strong at the end of last year.Let's now turn to our regional performance. For 2023, we saw a good development in revenues and billings across all regions. Our Americas region saw a 12% constant currency billings growth in the fourth quarter and grew strongest in that time frame. This can be seen as a sign of first successes of the reorganization initiated at the beginning of 2023. Clearly, our investments in great new talent and the new leadership under Georg Beyschlag are starting to pay off here.Our Americas team has closed some very promising Enterprise deals in the fourth quarter, which I will highlight in just a minute. Also on a full year basis, Americas saw strongest regional revenue growth of 12%. Our largest region, EMEA, reported good results for the full year with revenue growth of 10% and billings up 9% on constant currency. In the fourth quarter, revenue grew even stronger. This is particularly noteworthy because Q4 of the previous year was already very strong, if you recall. And the results were driven by an excellent Enterprise pipeline conversion and strong contribution from our tech partnerships.Lastly, APAC reported a revenue growth of 8% for the full year. Fourth quarter was affected by weaker macroeconomic environment and came in with 5% growth. On a billings basis, it was our strongest growing region over the full year with encouraging new Enterprise customer wins and frontline use cases, growing 14% on constant currency.We've talked a lot in the past quarters and years about how TeamViewer is growing in the Enterprise sector and is really providing solutions for a broad range of use cases and industries worldwide. And that's why I brought this slide today to give you a glimpse into some of the Enterprise deals, which we closed or renewed in the fourth quarter.In the first row, there are 4 deals from EMEA, the second row is from the Americas and the third one is from APAC. And regarding the deal size, most of these are from the highest and second highest Enterprise buckets. And the customers range from multinational corporations to leaders in their national markets to innovation leaders in a particular industry. We can see that we really cover many industries from engineering, pharmaceuticals and mining, to retail and food and beverage, to the social and health care sector.In addition, we cover use cases along the entire value chain. From traditional IT supports, to remote access into OT devices, to warehouse picking, and aftersales support and maintenance. And it might be interesting if I highlight just a few of these deals. In the upper left corner, this is one of the Europe's largest engineering companies. They use TeamViewer Tensor to remote into machines at their customer facilities for fast troubleshooting. We renewed this deal in Q4 and the new deal volume now makes them one of the largest customers overall.In the second row, there is a U.S. customer from the food and beverage sector, wholesale business. It is a net new deal, also very high 6-digit volume. They use TeamViewer Tensor for multiple use cases, including IT healthtech, but also vendor support and remoting into OT devices such as food industry refrigerators.And in the third row, I would like to highlight a deal from the mining industry in Indonesia. The company performs daily checks of mining equipment and trucks with TeamViewer Frontline. The workflow for checks is running on smart glasses, meaning the technician is guided through the inspection and at the same time, can perform the necessary tasks hands-free. The procedure is accurately documented and saved, thanks to an integration into the existing back end. Bottom line, I think this slide helps to understand how broad our business has become in terms of industries, regions and use cases.I would also like to give an example of how we collaborate with our global tech partners to jointly win new customers. This is a deal that we closed in Q4 with our partner, Siemens. The customer is a leading aerospace company with global presence. The customer was looking for a solution to improve remote training and skill development for technicians in around 100 locations worldwide.And what we do with Siemens here is we provide this customer with an immersive interactive 3D solution. It combines Siemens advanced digital twin capabilities and TeamViewer's spatial computing capabilities that bring the 3D data to life. Technicians worldwide can access these models via their tablets through the remote training.We have the customer to avoid travel and speed up onboarding by ensuring that all technicians receive the same advanced high-quality training and onboarding globally. Obviously, this is very important because the aerospace industry is one of the most complex one from an engineering perspective and at the same time, one with many strict regulations.Additionally, we are in times of skilled labor shortage and retirements of the baby boomer generation that is affecting all industries and increases the need of faster onboarding and development of new staff. And together with Siemens, we have this customer to maintain the same high standards in this demanding industry and take its training to the next level from a technological perspective.Another topic I'm really excited about is our new spatial support app that we've launched only end of last week, together with the arrival of Apple's new spatial computing headset Vision Pro in the U.S. Since their announcement in the fall last year, the whole tech world has been waiting for these devices to be available in store. And I really have to say the Vision Pro immersive experience is a step change in the industry. I'm proud that we are among the first vendors that have an app ready from the get-go. Moreover, our app is targeting the B2B enterprise space. And let me explain how it works.Imagine a service technician who needs to repair or maintain a complex object or any type of machinery is stuck in the process. He or she uses TeamViewer spatial support app on an iPhone to capture detailed 3D models of the device that needs to be supported. And then in a shared session, a remote expert using the spatial support app on Apple's Vision Pro can then interact with the precise visual models captured on iPhone.Together, these 2 then, they have a synchronized 3D experience with the expert guiding the on-site technician via annotation and 3D elements through the repair or maintenance process. This is bringing a new level of fidelity, visual depth and detail to aftersales and field service support scenarios. Ultimately, it addresses labor shortages and the need for easy knowledge transfer by bridging the gap between on-site challenges and remote expertise.And with that exciting new use case, I hand over to Michael for the financial.

[Michael Wilkens, executive]

Thank you, Oliver. Good morning, and a warm welcome to all of you also from my side. I'm looking forward to presenting our preliminary financials for the fourth quarter and the full year of 2023 as well as our outlook for the new financial year 2024.On Slide 12, our full year 2023 revenue increased by 11% to EUR 627 million. Billings grew by 9% on constant currency to EUR 678 million. As we have continued to point out during the year, we were faced with significant currency headwinds throughout 2023.For example, the average U.S. dollar to euro exchange rate in '23 was EUR 108 compared to an average of EUR 105 in 2022. And as you will remember, this FX rate of EUR 105 also form the basis for our full year 2023 guidance. Based on this guided FX rate, our revenue increased by 12% and the billings by 9%. That being said, I can confidently say that we fully delivered on our guided revenue range of EUR 620 million to EUR 645 million based on our guided FX rate and on a reported basis.ARR increased by 8% to EUR 650 million, and our net retention rate came down by 3 percentage points to 104%. This was also primarily driven by FX headwinds of almost EUR 13 million. Despite increasing investments, in particular in R&D, our adjusted EBITDA was up 13%, increasing even faster than the revenue and thus leading to an improved adjusted EBITDA margin of 42%. This corresponds to a further 1 percentage point margin increase year-over-year and a 2 percentage point beat on our guided margin underlying our best-in-class margin profile. Our levered free cash flow grew by a very strong 16% to almost EUR 200 million.Looking ahead to the current financial year, I want to briefly point out here that this strong growth was supported by a positive one-off cash effect in 2023. Even adjusted for this effect, our levered free cash flow would have grown slightly above our expectation. I will explain this and the effect of our full year '24 cash flow later in more detail.With 31% growth to EUR 0.88, our adjusted EPS grew significantly stronger than our adjusted EBITDA, which is not least also the result of our significant share buybacks. This to me is clear proof that our capital allocation strategy supports our shareholder value creation.Throughout the next 3 slides, we will focus on the quarterly development of our group results as well as our SMB and Enterprise business. After a look at our main financial KPIs for the full year of 2023, I will now explain the details of our strong fourth quarter results for the group and the SMB and Enterprise business. Our total Q4 billings developed even stronger than last year with a respectable 8% constant currency growth on top of a very high compare. And as you can see from the bottom right chart, we generated EUR 19.4 million in new billings in Q4, which represents a significant year-on-year uptick of 36%.Our total Q4 billings growth was equally driven by up-end cross-selling to existing customers and by new customer wins. Revenue increased by solid 8% to around EUR 163 million in Q4. And as you can see on the top right chart, we again delivered a very strong adjusted EBITDA margin of 38%. Let's continue with a closer look at the performance of our SMB business on the next slide.SMB revenue increased by 6% in the fourth quarter and 8% for the full year. At the same time, our billings grew of 3% on constant currencies against the very strong previous year's quarter. On that basis, SMB finished the year with a 9% constant currencies growth.As you can see on the right side of the slide, ASP increased by around 6% year-on-year, which reflects the full annualized positive effect of our revised pricing policy that we put into motion in Q4 2022. With this full year pricing cycle, you will notice a minor quarter-on-quarter drop in Q4 2023. As the market leader for remote connectivity solutions, we remain confident though about our pricing power. Moving forward, we expect annualized pricing effect at a normalized rate of around 3% to 4% across the base.Our customer count increased by roughly 1% year-on-year, while churn remained at a stable level with only marginal changes over the course of the year. By the way, please keep in mind our SMB subscriber count as well as churn will no longer be adjusted for the discontinuation of our business in Russia and Belarus from Q1 2024 onwards. Given that we have now entered the second financial year after our exit from these markets, the corresponding effect has faded out.Let us continue with a more detailed look at our Enterprise business. As Oliver already explained in the beginning of this presentation, based on many new use cases we again saw a fantastic Q4 execution enterprise. We even topped last year's exceptionally strong year-end with a 23% constant currency billings growth. As you might expect, we had projected a somewhat flatter development given this high base that we were able to win almost every lead in the pipe of our service offering.This outstanding achievement is further backed by the fact that we grew our Enterprise customer base by around 14% to now almost 4,200 customers around the globe. This was also driven by the previously mentioned strong net upsell from the SMB business into Enterprise of around EUR 70 million throughout the year.Our net retention rate of 106% improved compared to Q3's level, but is down compared to 12 months ago. This development was mainly driven by FX headwinds and slightly softer Enterprise growth in the first quarters of the year. Revenue increased by 19% in Q4 and even stronger by 24% on a full year basis.Let me summarize. 2023 saw another strong year-end finish in Enterprise, and we are also confident to carry this momentum into the new financial year.Let's now delve into our 2023 cost base. Our total recurring costs consisting of cost of goods sold and total OpEx increased by 9% or EUR 25.3 million on a full year basis. As you can see, most cost buckets grew more or less in line with our revenue growth of 11%.There are 2 notable exceptions. First, R&D costs increased by 18% or EUR 9.8 million on the back of our continued investment into strategic initiatives for the future growth. Second, this was largely offset by significantly lower other costs, which saw a reduction of 87% or EUR 9.3 million, mainly driven by a significant reduction of bad debt as well as hedging gains.With our total cost base growing slower than our revenue growth of 11%, our adjusted EBITDA saw a strong increase of 13%. With this, the corresponding margin increased further by 1 percentage point year-over-year. This leads me to Slide 17.Despite increased adjustments for nonrecurring items, our net income increased significantly stronger than adjusted EBITDA by 69% and our basic EPS even stronger by a significant 81% in 2023. Our nonrecurring items increased by 19%, which is mainly the result of our ongoing employee share program. We are convinced that this is a highly effective and an efficient form of remuneration that also strengthens the entrepreneurial spirit of our employees, and thus has a positive impact on our business.With this, our unadjusted EBITDA increased by 12% year-on-year. Net income and EPS were driven by positive developments in 3 buckets: first, a significantly slower growth of only 3% in depreciation and amortization driven by reduced CapEx. Second, 29% lower financial FX results, resulting from base effects of one-offs as part of our refinancing in 2022. And third, our improved tax scheme as well as prior year one-off effects led to a 32% reduction in paid income taxes. With these one-off effects, our 2023 full year tax rate improved significantly at 23%.As you know, we are planning to optimize our tax scheme through a profit and loss transfer agreement between TeamViewer SE and the Regit Eins GmbH. Subject to the required resolution by our Annual General Meeting, we expect a sustained tax rate in the low 30s for 2024 and beyond. This is a significant improvement from our historical low 40s level before. With these drivers in mind, our net income increased significantly to EUR 114 million and our unadjusted earnings per share increased to EUR 0.66 for the full year of 2023. Adjusted EPS, which mainly adjusts for nonrecurring items and PPA amortization, increased by 31% to EUR 0.88.Let us now look at cash flows on Slide 18. Our levered free cash flow grew by 16% to almost EUR 199 million in the full year. Our 2023 levered free cash flow was positively impacted by one-off tax returns of EUR 6 million in 2023. Adjusted for income taxes, our pretax levered free cash flow grew by 12% to around EUR 244 million over the past 12 months.We were again able to achieve a very high rate of cash conversion of 76%, up 1 percentage point from 2022. Our pretax cash conversion even amounted to 94%. This is a testament to our very strong cash-generating business. Our cash flows were further supported by a CapEx reduction of around EUR 3.2 million given that we run a well-invested office setup in infrastructure.And finally, our interest payments and our income taxes remained largely stable. For income taxes, the effect of our higher earnings before tax was offset by the mentioned EUR 6 million tax return. Please note that you may find further details on our tax expenses and rates in the appendix of the presentation on Slide 30. As for interest paid, our slightly higher interest rates from the 2022 refinancing were compensated by overall reduced debt levels.I will further elaborate on our debt management on Slide 19. Throughout 2023, we have utilized our strong cash conversion in line with our capital allocation framework. On the back of an operating cash flow of around EUR 230 million, we have utilized more than EUR 160 million for share buybacks. In addition, we have repaid debt with a volume of EUR 100 million. After all of this, an additional combined cash outflows of around EUR 56 million for interest payments, CapEx and others, we still had cash and cash equivalents of EUR 72.8 million per end of 2023, which we consider a very comfortable level given our strong cash conversion.To sum this up, we generated shareholder value through successful operations, generating strong cash flows. Additionally, we have performed significant share buybacks. And on top of that, we have further strengthened our overall financial profile through effective debt management. Our revenue leverage ratio came down from 2.1% to 1.8%. Let me point out that our 2023 leverage target of 1.8% was based on our legacy billings EBITDA definition, which is exactly the level that we reached the end of 2023.On the bottom right chart showing our debt maturity profile, I want to point out that the EUR 85 million promissory note, which will mature in March, will be fully redeemed and partially refinanced for a new RCF agreement with a total volume of up to EUR 75 million.And one more thing before I continue with our outlook for the ongoing financial year. Just last Friday, Morningstar Sustainalytics updated our ESG risk ratings. With a risk score of 8.6, we are now the leader in the Enterprise and infrastructure sub industry. We also continue to be AAA rated by MSCI ESG rating. These excellent rating results show that we are best in class not only in terms of margins, but also when it comes to ESG. It will also have a positive effect in ESG-related refinancing in 2024. Please note that you can find a detailed overview of our ESG ratings in the appendix on Page 32.Slide 20, please. Let us now focus on the new financial year 2024 and our expectations. After a very successful year of 2023 with strong momentum in Q4, we are very confident with our outlook for the full year of 2024 despite a continuously challenging macro environment. On the top line, we expect revenues between EUR 660 million to EUR 685 million based on the average FX rate of 2023. This top line expectation reflects continued level of customer demand, but also FX headwinds from 2023 billings of around EUR 10 million to EUR 12 million. Our guided revenue range corresponds therefore to 7% to 11% growth on a constant currency basis.We expect to further increase profitability with a targeted adjusted EBITDA margin of at least 43% in 2024, which reflects the reduced sponsorship scope. These effects will, however, be partially offset by the previously mentioned EUR 10 million to EUR 12 million FX headwinds with a negative margin effect of around 2 percentage points. Overall, we expect a margin uptick of at least 1%, also on the back of our efficient allocation of resources, while continuing to invest in the enhancement of our products.Please be aware that there will be back-end loaded margin phasing throughout the year. We will focus on reinvesting in targeted marketing campaigns, sales and R&D projects already in the first half of the year and savings from the sponsorships will then start to materialize in the second half of the year.22, please. On the back of the outlook I just presented, TeamViewer will remain highly cash generative and deliver a continued strong cash flow conversion. As already outlined on Slide 18, our 2023 levered free cash flow was supported by a EUR 6 million one-off tax effect. For pretax, levered free cash flow, which is adjusted for income tax paid and can be considered as underlying free cash flow, we aim for a growth in 2024 in the same vicinity as in 2023, which will be around 12%. This allows us to reiterate our compelling capital allocation, which intends to create attractive long-term shareholder value.First, we are investing in organic growth with a ramp in our R&D capabilities next to continuous screening of tuck-in M&A. Second, immediate shareholder return with continued share buybacks. Since 2022, we have already completed programs with a volume of EUR 450 million. And in December last year, we have launched another program with a volume of EUR 150 million until end of 2024. Third, further debt repayments to a reduce leverage ratio of 1.3x net debt to adjusted EBITDA. By the way, please keep in mind, this refers to revenue-based EBITDA. This capital allocation framework will ensure an equity ratio of around 10%, which we consider healthy for our cash-generative business model and asset-light balance sheet.And I now hand over back to Oliver to a wrap up of our call.

[Oliver Steil, executive]

Thank you, Michael. Yes, let me summarize today's call on both our fourth quarter and full year 2023 earnings. And the bottom line is that we had a very successful 2023 with a strong year-end finish, especially in our Enterprise business, and this makes us very confident going into 2024.Moving into the new financial year. You can expect further top line growth and margin improvement with continued strong cash generation, as Michael outlined earlier. We do remain committed to further invest in our business and also pull all operational levers to lay and expand the basis for the future success of TeamViewer. And with all this in mind, we are convinced that TeamViewer is a highly attractive investment case, and we further see the current trading momentum creating an attractive opportunities for investors to buy into this case. We are, therefore, looking forward to intensifying our investor outreach and interactions in the coming weeks and months.With that, I would like to end our presentation. Thank you all very much for your attention. We now look forward to your questions. Operator, over to you, please.

[Operator]

[Operator Instructions] The first question comes from the line of Gustav Froberg, Berenberg.

[Gustav Froberg, analyst]

I have 3, hopefully quick ones, if I may. Firstly, on deal pipeline, like you mentioned on the call, you've closed a lot of deals that were in the pipeline in Q4, maybe even those with a little bit low probability. And could you tell us a little bit about how the pipeline looks now and into 2024? Does it need replenishing? Or do you feel like the pipeline still looks pretty healthy?Then a question on partnerships. Do you expect there to be any regional difference in the sort of partnership traction that you're gaining into next year? And maybe a little bit more color on how you expect this to develop? And then finally, a question on SMB and Enterprise and the split there. Could you help us with some color on the amount of large-sized or call it large revenue or customers I would call Enterprise from the revenue base that you classify as SMB customers of TeamViewer today, just to give us a sense of the upselling potential into 2024 as well?

[Oliver Steil, executive]

Yes. Let me start. So deal pipeline, obviously the Enterprise business is very back-end loaded. So you would always expect towards the end of Q4 that customers use their available budget to buy into new projects, and that drives conversion. So the pipeline at the beginning of the year does need replenishment very clearly. But it's also not the case that we have massively put forward deals from the first quarter into the last year. I think it was a very natural pipeline conversion, worked very well, better than we expected, for example in EMEA as we discussed before, but generally speaking a normal start into the year in terms of pipeline build and Enterprise across all regions in my view.Your second question is partnerships, how does it work regionally. I think it's relatively evenly distributed in terms of activity. Clearly, where we have the biggest Enterprise base, i.e. in EMEA and also Americas, this naturally works better because there is more customer situations that we are dealing and working with together, but also in Asia-PAC this is following. So I wouldn't make a big differentiation there. We now have pretty good engagement with the regional sales forces of all our partners, and that's coming through quite nicely. Both SAP and Siemens, different angles. You might know -- and also Microsoft. You might know that the sales motion for the 3 is different, so maybe a bit of color there.In SAP effectively, we co-sell but we do most of the selling. It's on our paper. In Siemens, it's an OEM deal where Siemens is doing the sales, and we provide an OEM product into the Siemens Teamcenter suite. And on Microsoft, we are part. So we are eligible for Microsoft Azure Consumption credits, which is effectively our sales motion, completely our motion with customers, so then customer can use their MACC credits to do the purchasing, which is a very elegant way of accelerating the closure of deals. And then obviously, you have different flavors by industry, but we can talk about that maybe in a different session.I'm not 100% sure I understood your last question. Maybe you can repeat it.

[Michael Wilkens, executive]

Gustav, please can you repeat it? It was difficult.

[Gustav Froberg, analyst]

Yes, sure. I guess the classification of your SMB and Enterprise customers is based on the billings that they make with you. But looking at the customer from the outside, perhaps a larger customer or someone who makes a lot more in overall revenue as a group might not be referred to as an SMB customer. Could you give me a sense of the very large size or call it traditional Enterprise customers that you may have as SMB customers, so a large company that effectively pays you very little today?

[Operator]

Yes. Now I get you. So yes, you're absolutely right. Our classification is a bit historical from IPO times, segmented by our business with the customers while I think most other SaaS companies would segment by revenue or a number of employees of the customers. So this is certainly something which, in the future, we might take a look at to become more standard there.But if we take a look at our segmentation, then if you recall the Capital Markets Day some time ago, we did a look-alike analysis in our SMB base where we identified roughly 20,000 organizations. So our SMB customers, which are actually Enterprise organizations, large organizations, which we can cross-sell into or upsell into, I should say. So we've now have an Enterprise customer base in our accounts of a bit more than 4,000. So that leaves you at least 15,000 to 16,000 at that point in time. So this is, I think, 2021, so more than 2 years ago. And obviously, we're winning more customers as we go along. So there's a significant number, very significant number of large organizations that are still buying only small licenses from us. And we have now put in place over the last quarters, quite effective lead passing algorithms or processes to make sure that we address these customers in the best possible way.So concretely, if an inside sales rep would come across a large customer name, we have incentivized that person to hand that lead over to Enterprise to try to sell the Tensor product and more into this. And going forward, we will also have a stronger key account motion in our Enterprise organization globally because we now have the scope and the staffing to address key accounts at separately of our kind of normal upsell and cross-sell motion.

[Operator]

The next question comes from the line of Deepshikha Agarwal, Goldman Sachs.

[Deepshikha Agarwal, analyst]

Basically, can you give some color on how to think about the shape of growth through the year? And more so from the perspective of like Enterprise we know like is mostly like tends to be back-end loaded and especially what is the dynamics on Americas there? And like SMB -- on the SMB front, what are the various initiatives that we should be mindful of over -- while the pricing dynamics are sort of normalizing there? What are the dynamics there that we should be thinking about?And the last one is basically on the new deals. It was an uptick in the fourth quarter. Any color on what was the mix within that between SMB and Enterprise?

[Oliver Steil, executive]

Let me start off with the last one. So I think you are referring back to the EUR 19.4 million, which was a very strong growth of 36% in Q4. You can basically take a split of 75% in SMB and 25% in Enterprise. So very, very good split. Of course, SMB also supported by our commercial blockers, so free-to-pay campaign and other mechanics, but also a natural new inflow of new customers across the board. And what I also mentioned in the morning already, this is super, super helpful for us, new fish in the pond, help us then to grow and develop them over time and become then, let's call it, a target for further upsell. So from time to time, we need these big chunks of new business. You should not expect that for every quarter, but this is obviously nice.And with regard to your first one, the shape of growth?

[Michael Wilkens, executive]

Seasonality. Yes. Let me do the second one first, SMB dynamics, what to look out for. So what do we do there? It's clearly, we have pricing power in SMB to push through price increases upon renewal on a kind of consecutive sustainable basis around 3% to 4%. We also always have a small number of new additions because we are optimizing our campaigning. Our brand has improved very significantly. If you look at our stats, so there is better brand reach, which does create some extra demand on the free and entry-level customers, which we then can convert also either from free to paid through our paid wall or also upgrading from the entry-level product to like a proper business or premium license. So that's clearly happening as well.We have put a significant effort and will put a significant effort this year into cross-sell. We have spent the last year being very busy on adding new partnerships for remote management, asset management, asset discovery, mobile device management through partnerships with Ivanti, Lansweeper and also organic development of our own products. So there's a bigger suite available now for our inside sales reps to cross-sell. And we're also constantly improving the offer presentment and bundling on our website for these additional cross-sell products.So these are the things we're working on. From a seasonality perspective on the SMB side, it's relatively unaffected by seasonality, I would say. It's more related to campaigns and how we run campaigns in the different regions, which obviously is very different from growth seasonality in Enterprise, which I think, Michael, you can --

[Michael Wilkens, executive]

Yes, about Enterprise, Oliver mentioned before, Enterprise will for sure be back-end loaded with all of the dynamics, which are useful from the customer point of view in Q4. But also in SMB, sorry, please don't forget and we mentioned that in the full year of 2023, we have the factor price up motion between 4% and 5% if you take the entire SMB base. And as Oliver also mentioned with the pricing power, we expect to be successful in around 3% to 4% in SMB so that there will be a little bit of a backdrop in the pricing motion. We make it rather a normal course of business since we started then back then in 2022. So maybe a little -- also on SMB, I would say it's rather trending towards the second half and maybe the second quarter beginning, but the first quarter maybe a little bit more light.But all in all, as we said already, billings are not that important for us anymore, it's the revenue and especially the AR. And here we will see also nice growth developments.

[Oliver Steil, executive]

And one quick addition on the pricing piece on SMB, also important to note that a lot of the price increases, the factor price increases, are in reality reduction of discounts that were put in place at the subscription migration. Most of you are aware that we did honor the long-term purchasing behavior when we did the subscription migration. And so quite a number of our SMB customers are still sitting at a price level which is well below street price. And obviously, we use renewals and campaigns and pricing mechanisms to slowly but truly get these people closer to the current pricing level.

[Operator]

The next question comes from the line of George Webb, Morgan Stanley.

[George Webb, analyst]

I've got a few questions, please. And maybe starting off on the nonfinancial side with what's happening in AR. It's clearly very early days with some commentators out there calling spatial computing and Vision Pro is a very significant step forward and potentially the next computing platform. But when it comes to your own plans and with Frontline, can you talk about how you're thinking about investments now between the different platforms and how much you'll be putting in around the Vision Pro ecosystem here moving forward? And as big an opportunity this is, there will clearly be a lot of investments going into this area from many different players. So how do you ensure you're investing enough to take part of that pie? That's all kind of the first question.Secondly, can you refresh us on how much Frontline or AR revenue there was in the mix in 2023? And then just lastly, back on the SMB side of the business again, the subscriber count has been pretty flat since Q1. You're expecting the ASP level to remain in place. But are there any green shoots to think that the SMB subscriber count can materially improve from here?

[Oliver Steil, executive]

Yes, maybe I'll start first with the investment. So I think what is important, we are very committed to Frontline workflows. Clearly, with the macro or mega trends of labor shortage, a need for efficiency, need for automation, use of AI, there is significant interest of companies to improve the workspaces of office workers, back office workers, knowledge workers and also frontline workers. So this whole chain, process chain of somebody working in the field or in a warehouse or in a production environment being able to use augmentation of data, visual instructions, 2D or 3D is a big theme, and we keep investing into this.I think it's also very important to note that we are very focused in our investments there. We focus on industrial work processes and the instructions there, the analytics around it. So this means logistics, warehousing, manufacturing, technicians, field service and the likes and the likes. And I think the fact that we are ready from the get-go with an app on Vision Pro shows you that we apparently have a very strong position in this space because many, many companies focus on entertainment, B2C type of applications there, but we really focus on workflows. And we do so since quite a few years. And I think it's testament to our experience and our strength that we have been able to attract partners like Microsoft, SAP, Siemens and Apple in this space. So I think, yes, it's important for us. We keep investing, and we make sure we focus on industrial customer use cases where we are the leaders in our field.For the billing split, I think [indiscernible], Michael.

[Michael Wilkens, executive]

Yes, we don't disclose that number, but it's still in a low double-digit area for AR billings. But obviously, we intend to develop that nicely going forward.

[Oliver Steil, executive]

And if you see the splits which we discussed of the use cases and the projects and the new logo wins where very often we cannot name the logo, the name, the customer name, you see that we have a very nice distribution now and also with the contribution from SAP and Siemens, which are all in the OT AR Frontline space or mostly, you see that we're really gaining traction on this end.Your last question, SMB, I think was regarding subscriber count, I think we have discussed quite often now that the subscriber number per se is not the key metric. We do see slight increases here and there. But what is more important for us really is to cross-sell into the base and to move customers from the SMB space where they are sizable into entry-level Enterprise offers, so Tensor Light product or then moving them into Tensor Pro. So that's much more important as a notion. But we do see stable churn in the entry-level segment, we do see good growth in the higher-value basket, and we also see a slight increase in subscribers. So I think that's a very promising point to start from.

[Operator]

The next question comes from the line of Toby Ogg, JPMorgan.

[Toby Ogg, analyst]

Just coming back on the Enterprise pipeline, you talked a little bit there just about some pull forward. Could you quantify how much of the Enterprise billings growth in Q4 came from deals pulled forward from the 2024 pipe? And then again, I appreciate the Enterprise pipeline is naturally more back-end loaded, but would you say it's more back-end loaded than you would normally see given that pull forward dynamic? And how does the Enterprise pipeline coverage look currently for 2024?And then just secondly, on the SMB shape, I think the comment there, Michael, was that it was -- it will likely be more 2Q or 2H in terms of the weighting. Could you just perhaps provide a little bit more detail on sort of why that will be the case?

[Oliver Steil, executive]

Yes. So question #1 Enterprise pull forward in the grand scheme of things completely meaningless. Just there's always one or the other deal where the customer accelerates, but that doesn't play a big role. And in that sense, pipeline stated is completely as you would expect it. So there's no abnormity or anything that is different from other years or normal selling behavior. So that's a nonissue. Good question.

[Michael Wilkens, executive]

And then the SMB shape. As we mentioned before, we started last year into the year with roughly 10% price up in the SMB space, and this is now down to 3% to 4%. So this will have a slight impact in our commercial block or free-to-pay. We always see how this develops, where how many customers we have, and we can track down and ask to convert from free-to-pay.

[Operator]

The next question comes from the line of Gianmarco Conti, Deutsche Bank.

[Gianmarco Conti, analyst]

Yes. I have about 3. So the first one is -- sorry to turn again on this, but your new billings is quite impressive this quarter. Finally, you returned to growth after nearly 3 years. So could you just share perhaps what are the dynamics here and what has changed in terms of your go-to-market strategy? And should we expect demand from new billings into next year?Secondly, SMB churn inched higher this quarter. Could you share more color on whether there's competition heating up on the lower end of this bucket? Or is this more a mechanical issue from multiyear deals? And lastly, actually multiyear deals were flat into Q4 from a strong comp. Should we expect new renewals into 2024? And will you be providing discounts for this?

[Michael Wilkens, executive]

Let me start on your churn question. It's a rounding thing. So it was 14.4% before and now 14.8%. So this was into both directions. But in the end, if you correct then, it's 0.4 in the data, so rather neglectable.

[Oliver Steil, executive]

On the first question, new billings. I think what you see there, what's really coming through is the breadth of the use cases. The fact that we now have traction with the partners, I think we have mentioned in the past that there's a very significant motion of addressing our large SMB customers and move them into new use cases and into the Enterprise product. And any additional business we do with those customers is not counted as new, but on repeat business. And new really means a new logo, which we haven't worked with for the last 12 months. So I think that's the definition.So what that means is you need to have the Enterprise salesforce -- sales people being out there in the field, creating new situations. Very often, that works together with partners or specialized Enterprise, dedicated Enterprise events like Experience Day around Formula 1 races, trade shows, events like Web Summit and the likes and the likes. And I think we always said that this takes time to build this up. And we now see the traction happening. We have very good situations with our partners with new use cases. Everything we do in frontline and OT or most of what we do there is the new business. We really approach new logos that we haven't been serving before through introduction with our partners or with our new salespeople. So this is kicking in.And in an Enterprise quarter, which Q4 is, you see that effect pronounced and emphasized, but we do expect that motion to be much more part of the game than it was maybe like 2, 3 years ago or so where a lot was driven from our SMB base.I hope that helps as color. I have not 100% understood your third question, but Michael has.

[Michael Wilkens, executive]

Yes. Maybe I might add on the second, what was also a driver of the EUR 19 million is obviously the web shop. So Pete redesigned the front end of the web shop. So it's obviously more clear, more easy, less clicks from check to deal. So that helped a lot. And the last one was on the multiyear deals, Gianni, if I get you correctly.

[Gianmarco Conti, analyst]

Yes. So it was about expecting whether we should expect continuous multiyear deals into 2024. And are you going to be providing discounts to allow that?

[Michael Wilkens, executive]

Yes. No, no, you should expect it, but you should expect that rather, as we mentioned, on a normal course of business logic, potentially a little bit less in 2024 than we had in 2023. But what we also said at all times is that we love multiyear deals. But now since the conversion from billings into AR is even more important to get the flotation out of the system, we want to focus far more together also with you on our AR development.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions. And with this, we conclude today's conference. Thank you for joining, and have a pleasant day. You may now disconnect. Goodbye.