Dear ladies and gentlemen, welcome to the conference call of SUSE S.A. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by the zero on your telephone for operator assistance. May I now hand you over to Jonathan Atack, who will lead you through this conference. Please go ahead, sir. Thank you, operator. Good morning and welcome to our presentation of SUSE's results for the second quarter of the 2022 financial year. I'm Jonathan Atack, Head of Investor Relations at SUSE. I will shortly hand you over to our CEO, Melissa Di Donato, and our CFO, Andy Myers, who are going to take you through a few prepared remarks before we open up to Q&A. Before I do that, can I remind you of the disclaimer on page two of the presentation, which contains important notices on the information provided in the following presentation? Thank you. Melissa, over to you. Thank you, Jonathan. Hello, everybody. I'm very pleased to speak to you today and share the details of SUSE's second quarter, which represented another strong quarter for the business. Starting with a reminder of our business, of course, and that's the important strengths that make our business model so resilient. The results that we're reporting today demonstrate the momentum in our mission-critical infrastructure solutions business, and it represents our ability to grow relationships with our existing customers, but at the same time being able to attract new ones. The mega trends which are driving growth in our markets, including the cloud transformation and the shift to Edge solutions, remain unchanged. They are the underpinning of the continuous demand for our products. We have diversified enterprise customer base with multi-year contracts where our customers pay for those contracts upfront. This powers our high net retention ratio of around 110% and enables us to remain confident in our long-term with sustainable growth, with high profit margins and a high cash conversion. Now obviously this is particularly relevant at a time when there is a great deal of economic uncertainty, but it's also why we've been able to deliver such a strong growth delivery in Q2. Moving first to our second quarter financial highlights. We're reporting 18% growth in adjusted revenue, and that's 19% at constant currency and a 36% adjusted EBITDA margin. ACV grew 28% in Q2, 32% at constant currency, supported by pricing improvements and by emerging ACV growth of a strong 79%. While being impacted by timing of customer billings, cash generation remains strong with a conversion rate of 64%. We expect our results for the full year to be broadly in line with our guidance, although FX movements, and rate changes, and the wider macroeconomic environment are impacting our reported numbers. Andy's gonna cover this in a bit of greater detail later on in this presentation. These results were underpinned by continued momentum in customer wins, both through cross-selling, which supports our high NRR, and by consistently expanding our presence across industries and geographies. This short list includes four examples of new business won in Q2, reinforcing SUSE's strong value proposition around the world. For the first, a Fortune 500 U.S. tech giant strengthens its long-term relationship with SUSE by choosing our enterprise-grade, reliable, and stable Linux product set. This large value win demonstrates further expansion into this global leader in the semiconductor, software, and services industry. A prestigious and globally renowned NGO responsible for shaping the global economic agenda chose SUSE Rancher for its flexibility, lack of vendor lock-in, and ease of use. This net new win enabled a small internal DevOps team to be highly productive and scale effectively. We had another net new win for SUSE Rancher with a global leader in info tech and research, which leveraged our market-leading container management technology and our flexible business model to support cost-effective scalability. We also signed a tenfold ACV expansion with a Forbes Global 2000 banking leader who chose SUSE Linux Enterprise Server, Desktop and Support for secure and stable custom-built OS image for ATMs and branch office desktops. We at SUSE are absolutely staying focused, and we're continuing to deliver against our strategy for our customers and for our shareholders. Our strategy embraces these five growth levers. You know already a lot about our commercial excellence, and that's across our organization, and recently, where we implemented a new structure to fulfill our role as a fast-growing global multinational company. Previously, we had one person running engineering, and we had one person running our sales functions. Today, we've brought together engineering and product management under three new general managers for business- critical Linux, enterprise container management, and Edge solutions, each of which provide a single point of accountability for end-to-end product management, ensuring that our products remain best in class and that our customers extract the maximum lifetime value from their SUSE products. Additionally, we've split sales into three functions, recognizing that we need to separate teams to retain our existing customers from those that need to attract new ones. Our new sales leaders are managing our demand generation programs. These will ensure that we have adequate resources to deliver on our growth trajectory and growth plans in what we would qualify as a tough market for technology, with higher- than- normal churn rates throughout the industry. This solution-based organizational structural change enhances our ability to cross-sell, to upsell, and to form partnerships across all product lines. I'd like to take this opportunity to say a personal thank you to Sheng Liang, who today announced that he will be transitioning from our leadership team to our supervisory board now that our new GM structure is safely in place. SUSE will continue to benefit from his technical expertise and his strategic leadership. I very much look forward to working with Sheng in his new role. In parallel, we are continuing on our path of rapid innovation, and in the past six months, we've delivered major new updates to SUSE products across the whole infrastructure stack, all with a very clear focus on security enhancements. I'm gonna cover these in greater detail on the next slide. We will continue to invest in geographic markets with great opportunities for growth, such as demonstrated by our growth rates in North America and LATAM in this quarter. Finally, as you would expect, we are continuously assessing M&A opportunities to leverage our current market position and our global customer base while successfully integrating our new platforms, programs, and innovation. On the next slide, you can see what we have built, and we've built the industry's most secure open source infrastructure from the operating system all the way up to developer services. Rapid innovation has delivered major new enhancements to SUSE products across the entire infrastructure solution in the past six months, all with a very clear focus on security capabilities. To highlight just a few of these, this May, we announced the release of SUSE NeuVector 5.0, the first major release of our container security platform since we open sourced NeuVector in January of this year. SUSE NeuVector 5.0 is integrated with SUSE Rancher and works with all major Kubernetes platforms, including Amazon EKS, Google GKE, and even Microsoft AKS. At the same time, we announced the release of SUSE Rancher 2.6.5. As part of that release, users can manage SUSE NeuVector directly through the Rancher console. By giving our customers and our communities better visibility, access, and risk management controls across their entire multi-cluster and multi-cloud Kubernetes environments, we at SUSE are taking significant steps to establishing Rancher as the industry's most secure container management platform. In June, we launched major enhancements to SUSE Linux Enterprise Server 15 in a service pack that's called Service Pack 4, allowing SUSE customers to operate the latest and the most secure version of our product without any disruption to their operations. To that end, SUSE Linux Enterprise is currently the world's most secure and compliant enterprise Linux distribution. Our extensive list of certifications and security capabilities puts us well ahead of the competition in delivering a secure infrastructure solution for our customers. This is another important differentiator for SUSE, alongside our interoperability and our industry-leading customer service. We're not stopping with our existing product set. We're continuously expanding, both organically, working through the open source community, and inorganically through acquisitions. As you well know, ESG is at the very heart of our business and our plans for a sustainable growth. We continue to deliver on our ESG roadmap with some great progress across our key commitments for FY 2022. First, on climate action. We're on track to set near term emissions targets, and our commitment to setting these have been recognized by the Science Based Targets initiative. In information security, we've made notable progress towards strengthening our information security and data privacy in line with ISO 27001 standards, enhancing our policies following our first internal audit, which occurred in May. Under the disclosure banner, we have improved the quality of data collection and metrics across our focus areas, and we are preparing for the next annual disclosure in line with GRI standards and EU directives. Finally, on external assessments, we're preparing for a sustainability assessment with EcoVadis, an independent rating agency to evaluate our material ESG impact. With that, I will hand it over to Andy, our CFO, who will now take you through the details of a strong quarter in our financial performance. Andy? Thanks, Melissa. Good morning, and good afternoon to you all. Q2 was another strong quarter for SUSE, demonstrating the momentum in our mission-critical business. ACV was up 28% and 32% on a constant currency basis. We reported 18% growth in adjusted revenue, 19% on constant currency. Group ARR was 15% year-on-year, and NRR remains strong at 109%. We have continued to deliver high profitability and cash generation with a 36% adjusted EBITDA margin and a cash conversion of 64%. I'll now take you through our KPI, starting with ACV. Group ACV grew by 28% with a 32% on constant currency basis. Core ACV for Q2 was EUR 114 million, with growth of 20% at actual FX rates and 23% on constant currency. This growth was driven by end- user product upsell and renewals, and by continued growth in our cloud service provider route to market. Emerging ACV for Q2 was EUR 26 million, with growth of 79% at actual FX rates and 84% at constant currency. Renewals in emerging more than doubled from the prior year, benefiting from the increased customer base. As you can see, our emerging ACV is growing rapidly, and this is driven primarily by new contracts. The current macroeconomic environment has, however, led to a slower purchase decisions from our customers on contracts. Moving to performance by our geographic regions, EMEA and APJ ACV growth of 18% and 17% respectively, were driven by upselling primarily to end user customers and growth in consumption through the cloud service providers. North American growth of 34% was driven by Rancher renewals on a growing customer base and higher sales to embedded customers. Latin America delivered exceptional growth of 197%, underpinned by our pricing strategies, which started to take effect in the quarter. Now let's look at our performance by route to market. End user ACV, including the cloud route to market, grew 28% in Q2, driven primarily by upsell and renewals across both core and emerging product lines. Independent hardware vendor and embedded ACV grew 27%, driven by strong sales to embedded customers who ship devices with SUSE software built in. Sales to hardware vendors continue to decline due to hardware shortages and a shift to selling to the same end customers through other routes to market, primarily through cloud providers. Now let's turn to revenue. Total revenue in the quarter was up 18% to EUR 161 million, 19% at constant currency. This strong, consistent growth reflects the ongoing delivery of our strategy. We're benefiting from the migration to the cloud, the investments we've made in our sales force, and the high demand for our products. Core was up 10%, driven by continued growth of sales through cloud service providers and renewals with upsell. Emerging was up 78% in Q2, with upsell and renewals from existing customers and significant growth in consulting services. Both ARR and NRR metrics include NeuVector contribution since acquisition in October 2021. Group ARR reached EUR 619 million in Q2, up 15% year-on-year, driven by continued demand for our subscription-based products and services. NRR was 109%, broadly the same as last year and the previous quarter, demonstrating our ability to consistently expand existing customer relationships. In Q2 2022, we updated our ARR methodology as part of a stringent focus on this metric to track the performance of the business. The methodology now reflects a more complete view of our recurring bookings. All quarters in 2021 and the first quarter in 2022 have been restated on this basis. This has led to a small increase in the reported numbers, but the growth rates remain broadly the same. You can find more details on this in the appendix. Our strong revenue performance has allowed us to continue to invest in growth, as can be seen on the next slide. We continue to have a resilient and high gross margin of 92% in line with the prior year. Sales, marketing, and operation costs increased by 29% as we invest in our sales force. This investment was focused on sales development representatives who are responsible for the qualifying pipeline leads and on customer service managers to strengthen our customer retention capabilities. In addition, we continue to invest in marketing and in partner and customer relationships as COVID restrictions lifted, enabling face-to-face meetings and events. Research and development costs increased by 21%, driven by continued investment in SUSE's R&D headcount. These investments enable our continuous product innovation, demonstrated by recent enhancements to SUSE Rancher, SUSE NeuVector, and SUSE Linux products. General administration costs decreased by 18% to EUR 16 million in Q2. SUSE insourced several key roles in cybersecurity, business applications, and IT operations in the quarter, and invested in roles to support SUSE's position as a public company. This cost increase was more than offset by a favorable realized foreign exchange impact and timing differences in spend versus prior year. Adjusted EBITDA grew 22% to EUR 59 million in Q2 as SUSE's revenue growth was further enhanced by margin expansion. In March, shares were granted to employees as part of our ongoing incentive programs in the form of restricted stock units, vesting in equal tranches over three years, and share options vesting over two and three years. The total number of unvested RSUs and options outstanding is now around EUR 4 million. In H2, we expect our non-cash P&L charge to be circa EUR 17 million per quarter due to grants to new hires in the first half of the year, and we take about 60% of the total grant cost in the first year. Next year, we expect to return to an ongoing charge of around EUR 15 million per quarter. Now let's look at how our high levels of profitability, of profits, have converted into cash. The change in deferred revenue was a strong EUR 58 million in H1 as our customers continued to sign significant long-term contracts and pay up front. The increase in EBITDA and positive change in deferred revenue led to adjusted cash EBITDA of EUR 76 million in the quarter, up 40%, and EUR 169 million in H1, up 5%. Adjusted unlevered free cash flow for Q2 was EUR 38 million, and in H1 was EUR 82 million, down from EUR 67 million and EUR 106 million respectively in the prior year. This was despite a higher adjusted cash EBITDA, which was more than offset by a working capital outflow in Q2 due to the timing of customer billings and receipts. Gross CapEx increased as we invested in a data center move to ensure a future-proofed IT infrastructure. Due to this one-off investment, we expect elevated CapEx of EUR mid-teens million this year, and we will return to our expected run rate of circa EUR 10 million per year in the medium term. Cash conversion was 64% for the quarter and 74% for H1, below our guidance for the full year, primarily due to the working capital outflow in the half. Now let's look at our evolution of our leverage. In Q2, we continued to deliver the business. Net debt at the end of the second quarter was EUR 655 million, significantly below the prior year figure, which was pre-IPO. Compared to the first quarter, net debt reduced by EUR 35 million due to our strong cash flow. As a result, our leverage ratio, calculated as the net debt divided by the last 12 months adjusted cash EBITDA, was 2.3 x, down from 2.6 x at the end of the first quarter and well within our commitment to keep leverage below 3.5 x. Let's now move on and look at our LTM KPIs demonstrating the robustness and stability of our business model. Due to both seasonality and the lumpy nature of our contract wins, ACV and revenue can be volatile in any given quarter. These charts show our key metrics on a last 12 months basis, demonstrating our track record and providing a consistent picture of steady growth over time. Our last 12 months ACV continues to show progress, having grown 23% from Q2 2021 to Q2 2022. Weighted average contract length on a last 12 months basis remains stable versus the prior quarter at 20 months, supported by multiyear subscriptions on emerging contracts. We have consistently grown our ARR and our NRR that remains stable at a high and value-added 109%. This is a key foundational block of our future growth. Note that our ARR numbers here are on our new methodology that I mentioned earlier. Now let me take you through our guidance for the full year. SUSE's outlook for the full year remains broadly in line with previous guidance, specifically for adjusted revenue and adjusted EBITDA margin as profitability remains strong. Now let's address the potential impact of current macro uncertainty and foreign exchange movements. The current macroeconomic environment has led to slower purchase decisions for new contracts, primarily impacting our emerging business, which continues to grow rapidly. We expect core ACV growth to be in mid-teens in 2022 prior to FX impact. Following the strong growth in emerging ACV in Q2, we expect to exceed 60% year-on-year growth in H2, giving growth for the full year of around 50% prior to FX impacts, still representing a very strong growth rate. We expect adjusted revenue will be less impacted by the macro environment as a high proportion is already booked through long-term contracts, and therefore we continue to anticipate full year growth of mid- to high-teens%. We also reiterate our adjusted EBITDA margin guidance of mid-30s percentage as our adjusted unlevered free cash flow conversion guidance of stable to high, a slight increase versus last year. Phasing of our H2 results will be weighted towards quarter four, reflecting our usual sales guide cycles and available renewal pools, with Q3 comparables also impacted by a large retrospective consumption contract in Q3 2021. Overall, we expect this to lead to a slight decline in core ACV in Q3, followed by strong growth in Q4. We have provided this guidance before the impact of FX, as we did at the start of the year. Although FX rate movements have and will impact our reported results. We have seen a significant strengthening of the US dollar versus our other major currencies. This has suppressed our ACV, which is subject to in-period exchange rates. Revenue is also suppressed, but to a lesser degree, given we carry a significant proportion of revenue into the period in US dollars as deferred revenue on the balance sheet. A strengthening of our ACV, which is subject to in-period exchange rates. The strengthening of the US dollar also reduces our operating cost base, which typically offsets the revenue impact and therefore is a small tailwind to EBITDA margin. Unlevered free cash flow is highly dependent on working capital movements, and this means that FX impacts are difficult to predict. In general, a stronger dollar reduces the value of our non-US cash we receive up front from customers, which has a small negative impact on unlevered free cash flow. On this slide, we've summarized the expected full- year impact on FX and our reported numbers, assuming that rates stay roughly the same as at the end of H1. Finally, we confirm our medium-term guidance reflecting our strong net retention rate and a large renewal pool, our order pipeline, growth outlook in our markets, and SUSE's competitive position. With this, I'll hand you back to Melissa to close. Thanks, Andy. In closing this session, I want to remind everyone on the call and listening in of the resilience and the strength of our SUSE business. We deliver mission-critical infrastructure software within rapidly growing markets. Our subscription-based model and diversified customer base ensure that we have a robust and sustainable recurring earnings set over the medium and the long term. Upfront payments on our multi-year contracts drive high cash conversion. Altogether, our business remains well placed to drive value creation in the years ahead. This concludes today's presentation. Thank you very much for attending and listening in. If I can, I'll hand it now back to the operator who can start the Q&A session of the call. Operator, back to you. Is the operator there? Dear ladies and gentlemen. There we are. We will now begin our question- and- answer session. If you have a question for all speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. We have a first question. It's from Varun Rajwanshi of J.P. Morgan. The line is now open for you. Hi, this is Varun Rajwanshi from J.P. Morgan. Couple of questions from my side. Firstly, given your comments on slower customer purchasing decisions and delays in customer projects, do you think you have sufficiently de-risked your ACV guidance for the full year? Can you comment on your confidence in terms of hitting that FY guide, the pipeline as you see today, and the conversion? Secondly, how should we think about the phasing of margins in Q3 and Q4? Finally, on, you know, your retention rate, can you comment or give some color on the split between gross churn and cross-sell and upsell? Has the gross churn number gone up in Q2? Thanks. Hi, nice to meet you. I think this is the first time that we're speaking to you since Stacey, I think it was, wasn't it, left. Nice to have you. Let me address the first question, and then I'm gonna hand it to Andy to address the phasing of margins, and retention, and gross retention rates. Your comments about the slower customer purchasing decisions, you know, let me go back to the end of the comment that you started with, which is around pipeline and conversion. We have more coverage in our pipeline than we've ever had, and we have more demand than we've ever had. That gives us strength in the conviction to deliver in our medium-term guidance as well as the ACV as projected and promised as part of this presentation, this quarter's earnings. You know, what we are seeing is that while we have bigger pipeline and a bigger ratio to be able to convert that need to be made to convert the pipeline is just slowing down a slight bit. Folks seem to be a little bit more cautious about how they spend, particularly net new. Now, it's not impacting our renewals, and it's not impacting our cross-sell opportunity into our renewed customer base, but it is delaying a bit of decision as it pertains to net new. The pipeline is bigger than it's ever been, and the ability to convert and get coverage is better and stronger than it's ever been. It's just that the decision-making is delaying things slightly and not a lot. I say not a lot because we can still see to the end of the year as well as the early part of next year, so it doesn't give us any kind of concern. In fact, it does the opposite. It gives it strength in our numbers and our outlook for the year and in the medium term to be reconfirmed. Andy, and if I missed anything in that regard, and then if you can just touch on the phasing of margins as well as the retention rates, that'd be great. Yeah, sure. On the phasing of margin, Q3 and Q4, maybe a slight increase, probably a slight increase in Q4, linked just to the increasing revenue coming through. A slight increase in Q4 on margin, but nothing hugely significant. With regard to churn and gross retention, we're seeing no change in our churn and our retention rates. We are selling mission-critical software and services, and therefore, we are seeing absolutely no change whatsoever. That is fundamental foundational block of our business and why we're seeing net retention rates of 109%. I hope that helps. That's useful. Thanks, Melissa and Andy. The next question is by Quentin Marbach of Goldman Sachs. The line is now open for you. Hello. This is Mo from Goldman Sachs. Hi, there. Hey, Melissa. Hey, Andy. Hey, Mo. I had a couple of questions. Firstly, just coming back to your comments on sort of the macro, you know, is there any particular kind of deal size points that are kinda getting impacted in terms of customer decision-making? And is there. You talked also about sort of increased attrition. As you think of kind of the emerging segment, was there kinda greater impact? Clearly, there was. You've lowered the guidance there, so, is there anything around, you know, kinda the attrition playing an impact outside of the macro? In terms of, as you think of the resiliency of kind of emerging versus the core, do you believe, I know there's a kind of slight issue in Q3 to Q4, but is there a risk around, you know, that maybe you see a bit more of an impact in the core further in as we move on? Secondly, you made a comment around sort of M&A. How do you sort of see your M&A pipeline? You know, have you seen sort of shift in sort of valuations in the private market? How do you think of the kind of probabilities of supplementing the organic growth with M&A over the next sort of 6-12 months? Thank you. Sure. Let me break it down a little bit, and then Andy, pipe in on the first one around macro. Deal size. You know, we're seeing a bit of an impact on decision-making for the smaller deal size versus the larger. That's why you're not seeing a lot of risk in the business, and that's why the business continues to be strong and to be able to deliver high profitability and high levels of net retention, right? It's the deal size that are more on the macro side that are being impacted on, you know, less than $100,000. Now, that's a long tail, and there's a number of deals, and those are the ones that are gonna be impacted. We're not seeing any kind of impact from a macro standpoint for the large transactions. It's much more for the smaller ones. The next part of that question was around the attrition rate. As of late, we did an analysis, actually this week, where we analyzed the levels of attrition, particularly in the sales team, as it breaks down from core to emerging. We've seen a turnaround in attrition. We've seen more recently a stabilization of the sales force staying put and staying in place. Now, we have a number of different initiatives and programs and outreaches to really be able to stabilize the sales team to keep them in place because obviously the longer they're in place, the more return and value that we'll get in the way of productivity. We've seen now, finally a real turn, and I think that, you know, as the macroeconomic environment continues to be volatile, that great resignation that we've all learned to become accustomed with in the last year, I think, and my belief is beginning to shift. You're not gonna see the great resignation continue very much anymore. Instead, you see very different outcome in way of a lot of technology companies, so folks are beginning to really see a lot more stabilization. Particularly us, we're seeing a lot more stabilization in the business. You know, because we've gotten the innovation coming out, and because we've got the strong profitability, and because we're investing a significant amount, as you've seen from our numbers, in R&D and innovation, as well as in building up and bulking up and advancing our sales team, that's an organization that people really wanna stay with. We're seeing a real shift in attrition, and that now declining in the other direction in a much more positive way. I think we'll see a lot more resiliency in our business, where it pertains to the sales team in particular, as we begin now going out of Q3 and into Q4 and definitely into the back end of the year. That is less of a concern and much more of a greater opportunity for us. You know, the emerging business, which was the other side of the coin, you know, we had a sales team that came in from Rancher that looked to get acclimated, get adjusted, and, you know, feel comfortable in the new SUSE methodologies and ways of selling. That's also now sustained a bit of security in that business. No, I don't worry around the risk for emerging, particularly related to attrition. I don't worry about attrition right now because it's really shifted in the other direction. I think the good news is that we're past that now. It's not a risk in the future. I think we've overcome it. On the M&A, Andy, did I miss anything that you wanna comment on? Just looking at core and emerging there, answering part of your question there. If we look at emerging, we've got good coverage. And again, we're still forecasting in excess of 60% for the second half of the year and a consistent greater than 50% in our medium-term guidance. We've got the coverage. It's just some deals are being slowed down, and that's just impacting us at the moment. We're not losing them, and we've got the coverage, it's just the timing to get to deals. On the core side, as you know, incredibly resilient. It's far less susceptible because we've got the renewal pool, we've got the strong upsell, we've got initiatives like pricing, which leans heavily on core being the older, more mature contracts. It tends to be customers buying additional products in core. That, again, is where they're making a new decision, and that's where we see some impact. It's a low impact on core. Cool, thanks. M&A, where do we see a shift as it relates to the private market? There is softening in the private market because of the, you know, the environment that we're in. It's not. I wouldn't qualify it as, you know, a tremendous amount of softening, but there is some softening in the market for sure, and we're utilizing that softness in the best way we possibly can to our advantage. You know, will we close an M&A deal, you know, in six months? Probably not. I mean, we've got a lot of opportunity in our pipeline, specifically focusing right now on security. We are the de facto leading provider across enterprise infrastructure solutions, addressing the Linux, but both the Rancher container side, that is the most secure platform in the market today. Because of the sought-after nature of our technology innovation over the last 3-6 months, our focus right now really is to continue the strength in our innovation and our product set and why we're differentiating, how we're differentiating. It's no longer just interoperability. It 's interoperability in the most secure platform offered in the market today. We're really focusing our M&A efforts and outreaches to be around that security and build security opportunity that we see in the market. Great. Thanks, Melissa. Thanks, Andy. Yeah, pleasure. The next question is by Frederic Boulan of Bank of America. The line is now open for you. If I can follow up on the macro question, is there anything you can point to in terms of specific services where you're seeing some of those delays, any specific geographies or end markets where you can point some specific trends? From a timing perspective, I mean, we haven't really seen your business going through recessions in the past. I mean, if I listen to you think, you know, demand is still very strong, it's just a question of timing in some cases. If you can articulate a little bit how you think the ACV can be sensitive to change in macro. I mean, you've kept the 2027 revenue target unchanged, so it seems like you're very confident. It'll be interesting to see to what degree we should anticipate that kind of trend in slightly more depressed new bookings for several quarters if the macro picture remains complicated. A quick follow-up on the share-based comp. I mean, your hiring comment, Melissa, seem to point to less pressure going forward. At the same time, your share-based comp is increasing to about, you know, $60 million a year. What can we contemplate in the long run? Should we pencil in a pretty stable percentage of sales or some moderation over time as you see some normalization in the job market? Any comment on that would be very useful. Thank you. Sure. Andy, do you wanna start with the share base at the bottom, I guess the last question? Then if you wanna dive into a little bit of the recession resiliency. Yeah that we have in the business, which then I'll pick up, and I can also cover on the macro side, you know, delays, market, geos, that sort of thing. I can wrap up on kind of covering a little bit, sprinkling it with all the questions too. Sure. Yeah, share-based compensation. Yeah, look, we've two factors in the growth. Firstly, we've obviously had a significant increase in head count. Within that, and you've heard Melissa talk about some of them, and you'll have seen some of them today, in recent days and months, we've had a fairly significant increase in new members of senior staff as well. All of that has added to the increase in costs. Clearly, as I think you know, of the whole three-year RSU package, you take 60% of that three-year cost in the first year. It's just the accounting policy for it. That's what you do. It is having a big impact in the next 12 months. Look, in the long term, it will depend on the job market quite clearly, which Melissa's spoken to, and it is likely to have some suppression coming from macroeconomic impacts. It will be dependent clearly on our growth of headcount. It's quite difficult to say and give you a forecast, but if headcount grows, then that cost will effectively grow. There are quite a few moving parts in that. When it comes to the sort of macro impact, I'd say, Fred, look, our change in guidance for FY 2022 on the ACV front is actually relatively modest in quantum. In fact, it's relatively small in quantum. Clearly, we have maintained our revenue guidance for 2022 and profit. From the ACV impact, yes, across a little bit across core and emerging, that does have an impact on revenue, but it's relatively small. Yes, there will be slightly less deferred revenue flowing into 2023. Again, given the size of numbers we're talking about, it is relatively small. Although technically, yes, we will carry a little less deferred revenue going forward. If you think about the macro impact in the medium term, we don't see an impact to us against our guidance. Our growth is being driven by the mega trends and the migration to the cloud, app workloads being driven by data analytics, and the growth of Edge or IoT, as you want to call it. We don't see that abating. We're also selling mission-critical software with certification, support, and security, as evidenced by our NRR, strong NRR rate. And we maintain our confidence in the growth drivers that Melissa talked about in the presentation and our growth levers. That's why we are reconfirming and confident in our medium-term guidance. Yeah, I wouldn't, Frederic, add anything to that. I think that Andy hit on something that's important that I think you referred to, which is that we're a bit recession resilient. I think that's probably a very accurate description of the SUSE business. That's specifically because we focus and have always focused on mission-critical workloads. You know, you can't shut down mission-critical systems. They need to be maintained, they need to be documented, they need to be secure, and they need to be supported. In some cases, they're regulated industries, in other cases, to be able to run businesses and deliver services to end customers. That's never wavered, and that has allowed us to deliver strong and steady growth over, you know, the last, let's call it 30 years since we've been in business, and this September will be our 30th anniversary. As we begin to look forward about, you know, living through a potential, you know, such recession, if there is one, we're not a business that's, that is volatile in that kind of situation. We're much more resilient because of the structure, the nature, and the historical record of the kind of services we deliver of the business. Yeah, we are very resilient, and you hit it quite well. It's a timing issue. It's not a performance issue. With the new set up of our GMs as well as our three leaders on the go-to-market side, we're set up to best be able to service these high-value enterprise customers in a much more effective way, separating renewals from go-to-market and sales and net new, all the way through to our new and organized commercial agreements that we have with our customers. I think the first question you had was, is there a particular area that we're seeing a delay? On the core business, our renewal business, there's no delays in our renewals. In fact, we continue to upsell, as Andy alluded to. Cloud, the movement to the cloud, hybrid and multi-cloud continues to accelerate and grow as expected. Workloads continue to expand and our Edge business continues to accelerate. You know, where we're seeing the delay is mostly on the net new on the smaller contract size rather than the large enterprise strategic. You know, they're not decisions that are being delayed for enterprise solutions that are across the entire, you know, an entire customer base, but they're small, pointed solutions that can tend to be delayed until a proof of concept is seen through, for example, on the emerging business side. Hopefully, that gives you a little bit more comfort on the strength and resilience, nature of the SUSE business. Great. Thank you both. The next question is by Charles Brennan of Jefferies. The line is now open for you. Great. Good afternoon, everyone, and thanks for taking my questions. I'm gonna do three if that's possible. The first, just on the macro, we haven't seen many other European companies talking about macro weakness yet. Can you just give us some indication of when you started to feel it in your business? Was it apparent since the start of the quarter in May, or is this something that only started to impact in June closure rates, or is it merely just a preemptive caution as you think about closure rates in July? Secondly, can you just talk about the sales reorganization? It feels relatively unusual to get a major reorg midway through the year. Do you think that's had any impact on the sales momentum through the quarter? Is there anything to read into that? Thirdly, just a small point of detail on share-based payments. It sounds like the majority of the options were issued in March. I guess the question is why wasn't the P&L impact flagged when you gave us the Q1 outlook, and what's changed since March for you to give us this updated P&L impact? Thanks. Let me address the sales org first, and then we can talk about Andy, you can cover the share-based payments and the flag from March. Then we can talk a little bit more about when the macro preemptive caution was delivered, and when we found it. Let me talk about the sales reorg. The sales reorg wasn't necessarily redone in the middle of the year. We talked about it in Q1, and the sales leaders came on board with the exception of Colin Brooks, who's just recently signed up and has joined the business only four weeks ago. Imran and Adam, who are our Chief Customer Officer and Chief Revenue Officer respectively, did sign on the end of the calendar year last year, so November and January. We did bring them on in Q1, and they did work with us coming out of our Q4 last year. While it sounds new and we're reinvigorating and reannouncing the investments we're making in sales, these announcements were made in Q1, so it's not midway through. It sounds unusual, but it's actually been implemented what amounts to be now five months ago. We're just talking a little bit more about the strength and the output of such an organizational alignment. The GMs were implemented earlier this year as well. We didn't have a full reorg completed in time to be able to talk about it in Q1, but that was something that we did discuss implementing in Q1. Now we're happy to discuss how it's worked well and how the success has paid dividends for us in way of that organizational structure. The macro side, you know, no one in Europe is mentioning it yet. I think we're the early ones because of our fiscal quarters. It's much more of a preemptive caution. You know, we see our pipeline growing, as I said earlier, I think it was the first question. We know we've got better coverage than we've ever had. The coverage is not needing to grow. It's actually can be decreased. We have more coverage than we've ever had. Our pipeline is growing in a more robust way, better than it ever has. We just see a slight slowdown. This is much more as a result of June closure and looking into July as we head into summer, of a preemptive caution. It's not that we've had impact quite yet, but it's much more to be preemptive and our caution to the street to make sure that we're transparent with you on what we see happening in the market today. Andy, can I hand it back to you? Yeah. to cover the payments and the P&L flags. Yeah. That could have been in Q1 outlook. Sure. Yeah. Hi, Charles. Yeah, it's relatively straightforward in that people join the business in quarter one, and then they are made offers around share-based compensation. The offers have to then go through a process which includes final approval by the Remco. In effect, these approvals only came through after the Q1, and then that's why you're then seeing the cost of them starting to appear in Q3. What's the share price that you've assumed in this P&L cost? You know, if we get back to a EUR 30 share price, what happens to the P&L charge? It's set at the point when they're offered. Yeah, the number of shares is set at the point of the offer, so that is effective with the cost at that point in time. Okay, thank you. The next question is by Johannes Schaller of Deutsche Bank. The line is now open for you. Yeah, thanks for taking my questions. Hi, Melissa. Hey, Andy. I also have three, if I could. Just firstly, could you maybe give us a bit of an update on the federal business, just how that is going? I remember you were quite excited in the last quarters, but you haven't talked about this that much today, I think. The second question is, I mean, Andy, you mentioned the pricing initiatives kicking in in Latin America now this quarter. We talked about this a few times before. My understanding was always more that the pricing initiatives maybe take a bit more time to come through. So how should we think about the other regions from here? Is there more of a sizable impact as we go into H2 and maybe next year that we should expect some pricing? Thirdly, we picked up a bit of color from some other software companies that are getting paid upfront, that their customers are pushing back on that now as the macro gets a bit tougher. I just wanted to check in with you if you've seen any of that evidence with your customers or if nothing is really changing in terms of the payment terms. Thank you. Hi, Johannes. Let me discuss a little bit about the federal business, and then I'm gonna cover the payment structure and allow Andy to do the same, and then also cover pricing. Federal business, we remain excited and enthusiastic just as much as we always have. The business continues to scale and continue to grow. We've hired a full roster of the federal team. Everything from marketing, finance, go-to-market sales, pre-sales, services are all now fully in place, and we expect that business to continue to scale. We're as optimistic, if not more today with Lynne's leadership, as we were last quarter and six months ago. There's nothing going on that's, you know, unbeknownst or that we're not disclosing. In fact, we're much more optimistic about the business maybe than ever before. On the pushing back on payments, you know, very much in the days of COVID, I braced myself as a CEO during my very first ever pandemic, thinking that customers are gonna wanna delay payments, and they never did. We didn't have any issues with bad debt. We didn't have any late payments. We didn't have any significant pushback at all during COVID, and it's the same now. If a customer is servicing their mission-critical workloads with SUSE, we're the one area that we don't have pushback in way of payment. No, we're not seeing anything going on with regards to payment or, you know, deferred payment terms or looking for an annual upfront fee or anything like that. Nothing has been on our customer radar at all in that regard. We continue to be highly profitable, very cash generative. In fact, the business continues to grow from strength to strength rather than you know even in a macroeconomic environment, we're just not seeing the pushback on payments or the payment structure. The only thing we do see is that a decision gets delayed maybe two weeks or 30 days, but not around payments. Andy, do you want to talk about, Johannes commented that you had talked about payments, pricing. Sorry, pricing initiatives and the impacts this and going into next year, and the example that we gave in last time this quarter. Can I allow you to comment on that one? Yeah, sure. Just adding to Melissa's point there. You look at our average weighted average contract lengths have remained at 20 months consistently for the last two quarters. That increased the previous quarter by one month, and that despite the higher growth, the normal end user, the higher growth of cloud at shorter contract lengths. So that's telling you that our end users are actually signing outside of cloud are signing longer contracts than they've ever done in recent history. So just a bit of evidence for that. Coming out to pricing, yes, we called out LATAM because 197%, it's growing well, and I think in previous quarters we've shown it's growing very well. That growth was accelerated by a number of contracts, particularly one contract where we noted in our paper that was 8x increase in value, with no increase in volume. Look, that was just one call out of a contract. We are seeing. We are making steady progress across pricing. We are seeing better control processes for discounting. We are seeing some of the initiatives we put in place, and I could think of the pricing we changed on unlimited VMs. That is now starting to pay dividends to us. We see that coming through. We put some initiatives in place that actually where we decreased price, and then we'll expect the volume to increase to take market share. We expect some of that. We see some of the impact of the lower price there, but we'll expect to see the growth. Look, I think I said once before, my expectation is, yes, this is a slow process. It's a three-year journey. Over three years, my experience is you would expect to see of the order of 10% growth out of pricing, over three years. We're on that journey. I said that in the last quarter, we've seen green shoots. I think now we're seeing real evidence that's helping us. There's a lot more to come. Yeah. Super helpful. Thank you both. There are no further questions, and so I hand back to you. Thank you very much. I think we will conclude the call for this quarter, Q2 for SUSE. Thank you very much everyone for joining and for your thoughtful questions. We hope that we've been able to answer everything, and we'll look forward to speaking to you again after the summer in Q3. Thank you very much for joining. Thank you for attending today. This call has been concluded. You may disconnect.