Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q3 2022 Results Analyst call of SUSE. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Jonathan Atack. Please go ahead. Thank you, operator. Good morning, and welcome to our Presentation of SUSE's Results for the Third 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 DiDonato, and our CFO, Andy Myers, who are going to take you through a few prepared remarks before we open up the floor to Q&A. Before I do that, can I remind you of the disclaimer on Page 2 of the presentation, which contains important notices on the information provided in the following presentation. Melissa, over to you. Thank you, Jonathan, and hello, everyone. I'm pleased to speak to you today and share details of SUSE's third quarter of our 2022 fiscal year. Before I present our financial highlights, let me start with a reminder of the many strengths that propel us and our business model going forward. The results we're reporting today demonstrate our ability to deliver high revenue growth, high profit margins, and high cash conversion. We're capitalizing on the strengths of our mission-critical infrastructure solutions in rapidly growing markets by developing relationships with existing customers, at the same time attracting new ones. With our subscription model diversified enterprise customer base and multiyear contracts with upfront payments, we have a strong business model which is driving long-term and sustainable growth. This is particularly relevant at a time like we are today of macroeconomic uncertainties. SUSE has delivered robust revenue and profitability in Q3. We're reporting a 13% growth in Adjusted Revenue and 15% at constant currency. Looking at the first nine months of the year, this growth is even higher at 16% or 17% at constant currency. Our Adjusted EBITDA margin was strong at 38%. ACV was down 4% in Q3 or 1% at constant currency. This decline in total ACV was driven by an 8% decline in core, which was largely expected and reflected a number of key factors. First, a large retroactive and retrospective consumption contract in Q3 of prior year, our usual sales cycle, the available renewal pool in Q3 2022, and then lastly, a foreign currency strong headwind. We delivered strong unlevered free cash flow of EUR 62 million, equivalent to a conversion rate of 94%. Furthermore, I am reiterating our guidance of Adjusted Revenue and for our Adjusted EBITDA margin this year. We are, however, seeing slower growth in our Emerging ACV, exacerbated by the macroeconomic uncertainties in today's economy. I'll elaborate on the dynamics in this business shortly. This macro impact is less marked in our core business, where a smaller portion of that business is new, given the very strong existing subscription base, but nonetheless is having a relatively small effect. It's important to note that we are reiterating our medium-term guidance, reflecting the growth outlook in the markets and SUSE's competitive position. Let's spend a few moments now on the key operational highlights and headlines. In terms of product development in Q3, we announced several significant enhancements to SUSE Rancher, SUSE NeuVector, and SUSE Linux, highlighting our commitment to cloud-native security. These enhancements were well received by our existing and prospective customers. In early September, we announced a new strategic collaboration with AWS, Amazon Web Services, to support a seamless migration of customers' SAP landscapes to AWS. This is a multi-year agreement expanding on our existing relationship with AWS and involves integrated go-to-market activities all across sales and marketing, shared channel enablement and engagement and training, and dedicated personnel worldwide. In Q3 2022, we continued to grow as a company. We added 69 people to our workforce despite an extremely and highly competitive hiring market. Following a bit of elevated churn in our sales force earlier this year, I'm pleased to say that the action that we've taken have softened and have returned dividends on our hiring market, and it's led to a more stable workforce with lower churn. We also made focused investments in salespeople, specifically dedicated to container management sales, and product development. ESG, as you well know, is the heart of our business and sustainable growth. We continue to make progress towards achieving these targets. We have received our sustainability rating with EcoVadis, which is one of our commitments from earlier this year. We were awarded a silver medal for our ESG practices, placing SUSE amongst the top 25% of the rated companies. Let me talk you through some of the key deals that we secured in Q3. In Q3, we continued to win important business through cross-selling use cases and across the business, supporting high net retention rates, and by consistently expanding our presence across industries and across geographies. This short list includes three descriptions of deals won in the quarter, reinforcing SUSE's strong value proposition around the world. First, a Fortune 500 US sports apparel giant chose our enterprise-grade, reliable, and stable Linux product set. This large value renewal won and demonstrated further expansion into a world-famous sports brand. A global leader in sensors, logistics, and manufacturing automation chose SUSE Rancher for its flexibility and for our responsiveness to customer needs. Lastly, a prominent Indian banking and payments institution chose SUSE Liberty, specifically based on their positive experiences with SUSE Rancher. This represents the first large-scale SUSE Liberty win in India, supplementing an existing SUSE Rancher subscription. Let me talk to you now about the current market dynamics and some important changes that we're going to be making. The mega trends that are driving the growth in our markets remain unchanged. Across the world, computing workloads continue to grow, and customers are increasingly deploying these workloads in the cloud and at the edge, underpinning demand for Linux and container management products. Open source Linux, including SLES, is taking share from competing operating systems due to its stability, higher security, lower downtime, better performance, and versatility across cloud, on-prem, and hybrid environments. The rising need for multi-cloud support and portability is driving container usage, which is predominantly a Linux technology. There is a huge potential for market growth, as only 5% of applications were containerised by 2020. As a result, the container management market is expected to grow 44% per year between 2022 and 2025. In Rancher, we have a market-leading container management platform, and we continue to see strong downloads and unique usage and users reflecting the rapidly growing market that we reside in. We now have over 40,000 unique users, and this is an order of magnitude higher than the number of customers we've converted to subscriptions so far. Let me tell you what we're going to do now to have faster growth to capture this market. While Rancher sales have grown significantly over the last two years, the business is currently performing, as you can see, below our expectations, and we are determined to take the necessary actions to fully benefit from the market growth and from our competitive position, even in tumultuous macroeconomic times. We're developing our business to capitalize on this significant opportunity through addressing any issues in the economy that could be impacting our growth today. First, as I mentioned last quarter in Q2, this current macro uncertainty continues to particularly impact our Rancher business with slower purchase decision-making for new contracts and some customer project delays. Second, potential new Rancher customers are more willing to extend the time they run unsupported with free versions of the software as their focus on costs have intensified. Third, despite the competitive hiring market, we've continued to grow our sales force. Following on the earlier churn in the year, this is now less experienced sales force that we have as we entered Q3, and therefore have been less able to convert deals faster into actual sales per the past, but specifically in the current economic environment. Number four, lastly, we're enabling better sales support and accelerated product development. In order to address these challenges, we're taking the following steps. First, later this year, we're going to be introducing new security and compliance capabilities for Rancher to specifically serve the evolving needs of enterprise customers. This leverages the experience we've gained from our established SUSE Linux model and will serve as the platform for future value-creating innovation. Second, in parallel with this evolution, to further differentiate from the free version, we are rebuilding and enhancing our go-to-market platform. What we're doing is we're expanding our team, and we're now developing that specialized Rancher sales force to improve our ability to deliver a technical value proposition to customers even in this macroeconomic environment. Lastly, we're also increasing Rancher's capability and Rancher's capacity specifically for product development and technical sales support to ensure we can deliver our new capabilities, maintain our current market leading position, and provide increased support to the sales team throughout the sales cycles. This three-point plan will allow us to capitalize on significant pipeline generation and specifically the conversion of the pipeline of opportunities that we've been building over the last nine months in our rapidly growing market. With that, I'll hand it now over to Andy, who will take you through the details of our financial performance. Thanks, Melissa, and good morning and good afternoon to you all. Q3 was another quarter of robust delivery for SUSE, with high revenue growth, profitability, and cash generation. We delivered Adjusted Revenue in Q3 of EUR 171 million, up 13% and up 15% at constant currency. This growth is also shown in our group ARR, which was up 14%, supported by a strong net retention rate of 108%, demonstrating that our customers continue to renew and grow their subscriptions. Furthermore, we delivered a high Adjusted EBITDA margin of 38%, supported by our strong cost control and cash conversion of 94%. While we are delivering high revenue, high profitability and high cash generation, ACV is not performing as we hoped for the reasons Melissa set out. I will now explain to you the details of our ACV delivery. Group ACV was down 4% and down 1% at constant currency, given the impact of exchange rate headwinds, primarily a stronger US dollar. We continue to see strong growth in cloud sales offset by lower ACV in other areas. The decline in Group ACV to EUR 114 million was driven by a decline in core ACV of 8%, which is 5% at constant currency. This was largely as expected and reflects our usual sales cycle, our available renewal pool in Q3 2022, and a high level of retrospective consumption contracts in Q3 2021. Emerging ACV for Q3 was EUR 21 million, up 21% and up 25% at constant currency, reflecting continued strong Rancher renewals, partly offset by lower new business, which has been impacted by the current macroeconomic environment and higher churn in our workforce earlier in the year. The macroeconomic environment has exacerbated the normal quarterly lumpiness and led to some uncertainty around the timing of when deals will be signed. With fewer deals closing in the important final few weeks of the quarter than we expected this time round. Moving to performance across our geography. Growth in APJ and Latin America remains strong, with growth of 20% and 21% respectively. North America was down 6%, driven primarily by the smaller renewal pool. Our performance by route to market included 4% growth in our end user ACV, including the Cloud Route- to- Market, driven by strong growth in sales across all CSPs, and a decline of 41% in our Independent Hardware Vendor and embedded route to market, driven primarily by the smaller embedded renewal pool. Sales to IHV were also lower versus the prior year, driven by hardware shortages and a shift to selling through other routes to market, primarily through CSPs. Let's now turn to revenue. Total revenue in the quarter was up 13% to EUR 171 million and up 15% at constant currency, underpinned by continued strength in cloud revenue. Like our ACV, this growth was impacted by the higher level of retrospective consumption contracts signed in Q3 2021. Revenue was up 16% for the first nine months of the year, 17% at constant currency in line with our full year guidance. Growth was supported by the unwind of deferred revenue and more rapid recognition of higher cloud ACV given their shorter contract lengths. Overall, weighted average contract lengths on a last 12 months basis remained stable versus the prior quarter at 20 months. Group ARR grew to EUR 640 million in Q3, up 14% year-over-year, driven by continued demand for our subscription-based products and services. Finally, our net retention rate remains strong at 108%, reflecting that our customers continue to renew their subscriptions with SUSE and are willing to pay a higher price or purchase a more expansive product selection. Our strong revenue performance has allowed us to continue to invest in our growth while maintaining high margins as we can see 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 operating costs increased by 15% in Q3 as we continue to invest in our sales force and in marketing focused on pipeline generation and qualification. Research and development costs increased by 7%, driven by continued investment in engineering and product management, with significant funding directed to our container management products. General and administrative costs increased by 5%, driven by headcount investment to meet the demands of our growing organization and being a listed entity, and an adverse realized foreign exchange movement. Our Adjusted EBITDA grew 18% to EUR 65 million in Q3 as SUSE's revenue growth was further enhanced by strong cost control and a positive overall impact from foreign exchange movements. Having added significant numbers of people to our workforce throughout this year, we will maintain strong cost control as we move forward, particularly given the current macroeconomic environment. The result is a margin increase of 1 percentage point versus the prior year, despite the high inflationary environment. Now let's look at our profits and how they've been converted to cash. Over the first nine months of the year, change in deferred revenue was positive EUR 39 million as we continue to sign new contracts with a total value higher than the revenue we've recognized. In Q3, change in deferred revenue was negative EUR 18.9 million, down from positive EUR 9.8 million in the prior year, driven by higher revenue recognition and lower ACV in the quarter. Our low CapEx and low cash tax business model enables us to drive continued high cash conversion of 82% for the year to date and 94% in Q3. Our strong cash flow supported our continued deleveraging. Our net debt at the end of the third quarter was EUR 604 million, a reduction of EUR 50 million versus the prior quarter. As a result, our leverage ratio was 2.3, flat versus the prior quarter, and well within our commitment to keep the ratio below 3.5. Now let's move on to look at our last 12 months KPI, KPIs which demonstrate the robustness and stability of our business model. These charts show our key metrics on a last 12 months basis, demonstrating our track record and providing a picture of consistent performance over time. While on this basis, our ACV has seen a quarter-on-quarter reduction, the year-on-year growth remains strong at 13%. Our last 12-month revenue continues to grow steadily, up 16% versus the prior year. Weighted average contract lengths on a last 12 months basis remain stable versus the prior quarter at 20 months. Finally, we have consistently grown our ARR with an NRR that remains strong at 108%. This is a key foundational block for our future growth. Moving now on to guidance for the full year, which we are providing before the impact of exchange rate movements, as we have done previously. Starting with our P&L, I'm pleased to reaffirm the full year 2022 guidance for Adjusted Revenue and Adjusted EBITDA margin. We are, however, seeing slower growth in our Emerging ACV, which has been exacerbated by the macroeconomic uncertainty for the reasons Melissa described earlier. The macro impact is less marked in our core business, where a smaller proportion of our business is new, given the strong existing subscription base. Nonetheless, it is having some effect. As a result, we now expect core ACV growth around 10% and Emerging ACV growth around 20% in 2022. We also expect adjusted unlevered free cash flow conversion to be in excess of 80% in 2022, which has been impacted by the lower ACV. Exchange rate movements, particularly the strong U.S. dollar, are reducing reported ACV, adjusted unlevered free cash flow and to a lesser degree, Adjusted Revenue, given we carry a significant proportion of revenue into the period in U.S. dollars as deferred revenue on the balance sheet. Our reported Adjusted EBITDA margin is supported by a positive exchange rate impact. Finally, we are reiterating our medium-term guidance, reflecting the continued growth outlook in the markets and SUSE's competitive position. We expect to build steadily towards these performance levels over the coming years, subject to the market and macroeconomic developments. With this, I will hand you back to Melissa to close. Thanks, Andy. In closing the full part of the session, I'd like to remind you of the resilience and the strength of our business. We do, in fact, and have always done, and will continue to deliver mission-critical infrastructure software within rapidly growing markets. Our subscription-based model and the diversified customer base ensure a sustainable and robust recurring earnings over the long term. Upfront payments on our multi-year contracts drive high cash conversion. Although we remain well placed to drive value creation in the years ahead. This concludes today's presentation. Thank you all for attending. I would like to now hand it over to the operator to start the Q&A. Ladies and gentlemen, at this time, we will begin the question- and- answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question is from the line of Laura Metayer from Morgan Stanley. Please go ahead. Hi there. Thank you for taking the question. I have three questions, please. First one is, your midterm guidance implies that you gain market shares. Could you give us some insights into whether you're gaining market shares at the moment? And if so, what the drivers are. Second one is, you flag that customers are willing to run an unsupported version of container management software for longer. Does that comment apply to all types of customers, even larger ones? And three, you had a large ACV decline in China. What is the outlook there, please? Thank you. Hi, Laura. Thanks for the question. The first one is about the midterm guidance with regards to market share. Perhaps I don't know, Andy, if you wanna reiterate midterm guidance as a part of this conversation. Let's talk about, you know, how we take market share. When you look at the 44% growth that we've anticipated for the container market as an example, that CAGR is based on revenues. Our revenue growth in emerging has been 59% in Q3 and 65% year to date. We're growing faster than the market. Inevitably it points to the fact that we are taking a higher growth. We are taking market share specifically in that segment. As it relates to the Linux business, it's the same thing. You know, the Linux business grows somewhere between 10% to 12%, give or take. With our business being predominantly traditional subscription-based and install-based growth, we are also taking market share there. You know, the market share percentages, you can probably research and give out, but hope that gives some perspective in the actual real numbers. If the market's growing 44% run, and we're growing upwards of, you know, 59% and 65% for the year, then you can see how fast we're growing and taking market share from other competitors. Just regards to willing to support unsupported versions of all types. There's a couple of things going on with containers right now. We only have one free version, enterprise free version of Rancher, and that we offer at no cost in a very traditional open source model. What customers pay for is support. Now, we started, and the original founders of Rancher started that business on the premise of the adoption-led strategy. What adoption-led means is that you have to get mass adoption to actually get as many users as possible utilizing the software. In doing so, as they're becoming, you know, adopting the software, if you will, there are very few engineers and support experts in the industry. What happens is the pendulum eventually begins to shift in this adoption-led strategy, which means the market's gonna be much more flooded with a lot more support engineers. The need to pay for support is not as urgent as it was, let's say, two years ago or even one year ago, because the, you know, the critical mass has been achieved in the adoption strategy. Now, that being said, mission-critical workloads are still being paid for in way of support. It's not really about customer size 'cause there's plenty of large customers, enterprise Fortune 500 customers, that are using the container portfolio of products and not paying for them. Perhaps, you know, they're not the mission-critical workloads and perhaps they're not in production yet, but eventually they will be. Typically what happens is they adopt the technology, they utilize it in a development space, but you can't have a version of the same software sitting in a container that is unsupported and then another version that's not in a container and then not supported. So eventually all the usage will be driving into a paid version of the software. So I mean, the message here really is that as long as adoption's increasing, usage continues to increase regardless of customer size, that eventually will tell you what's going to be happening with future revenue of the product. So it's not just one user type or customer size or even region for that matter. Andy, do you wanna talk about ACV? Specifically as a decline in China. Yeah. Thanks, Melissa. I think we've talked about China before. There is strong guidance from the government, a strong guidance and a requirement for businesses to buy locally. While we continue to sell there and while we continue to win some new contracts, it is a difficult market for that very reason. I think we've spoken about that before. Thank you. The next question is from Frederic Boulan from Bank of America. Please go ahead. Hi. Good afternoon, Melissa and Andy. Two questions on my side. Actually three questions, if I may. First of all, to come back on the core business, we've seen some slowdown in ACV. I mean, that's a business that's usually extremely defensive. Can you discuss a little bit more what's driving that slowdown in ACV growth? I mean, you mentioned a cycle for emerging is also a problem in that business. Secondly, to follow up on the previous question on MTP, I guess how do we reconcile the current ACV trends with medium term? Any elements you can give us that give you that confidence on the midterm growth outlook that you have. In particular, you talked about unsupported Rancher take-up. I mean, is there anything you can share with us in terms of what you're seeing on that front that we're not seeing and that give you that confidence into that level of growth in the medium term? Then lastly, if I may, around margins, if you can share your views on where we can expect margins to develop in the medium term, considering those efforts you've been doing around investments in the sales force. You have this target of 40% medium term. I mean, how do we get there from your 2022 levels? Thank you very much. Freder ic, t hanks. Let me talk about the core business first. You know, the core business is a slightly different model than that of the emerging business. The core business is less affected by the macroeconomic uncertainties around us. Nonetheless, what specifically is being addressed in core and being impacted by the macroeconomics is not the renewal and upsell business. In our renewal business remains very strong, and Andy can talk about the NRR associated with that business just a little bit more clear in just a second. The net of the core business is that the vast majority of the customers that we're selling into are existing customers that are really contained in the Fortune 500. Now, what's happening in that market is that when we sell to new, which again is a small percentage, when we sell to new, the macro pressures are putting a lot of pressure on things like savings, and further investments in new technologies. So rather than, you know, installing new applications for new usage and new use cases, perhaps they'll just delay that decision. That's driving a slightly softer net new business on the core side, but it's relatively small in way of impact. So we're not losing deals in that line of business nor in containers. It's really about decision making. In fact, when we look at the Q3 results and the last two weeks of the quarter, which is obviously, as you well know, vast majority of software companies have quite a big spike at the end of the quarter. Much of those slipped deals, particularly in containers, have already now since closed. It's not that we're losing them to competitors or they're going someplace else. They're just postponing and preserving cash in way of doing projects which are not necessary. On the ECM side, how are we gonna turn unsupported versions and take up into actual revenue? We're the only real ECM, you know, ECM provider in the market today for enterprise container management, in the ECM market that focuses on offering a single version of the software. We don't have a differentiated product. Our software is offered for free. You could take it up and use as many nodes as you want at no cost. Now, what's been happening in this kind of economic environment is that it's much more considered a beneficial technology. It's not a mandatory technology like it is in Linux. So buyers and, you know, CFOs, CIOs, et cetera, have just delayed the decision making because they can still use the software, they can still have uptake, and they can still have a lot of usage without having to pay for it. Eventually that pendulum will shift when it comes into production, when there's mission-critical workloads, as we're seeing more and more. The uptake, that adoption-led strategy will turn into not just pure unique users and usage of the software, but the requirement to have a paid version of the software as well. You know, what we see is often a leading indicator of the health of the business, of the future outlook of the business, and we track that every single month. Uptake is getting stronger, unique users are getting stronger, and the sheer number of downloads is increasing even when we don't have a recent version of the software that requires the download to happen in the first instance. It really is increased adoption and usage. If I can, Andy, the question around margin, I'll allow you to answer that, if that's okay? Yeah, just, I'll just follow up on the call element—s orry. Afternoon, Fred. On core, yeah. Our renewals remain very, very strong as a business. Our net retention rate 108%, and we're seeing no movement in our renewals at all with good, I say, retention rates. If we come on to the margin. Look, we expect in the medium term, our medium term guidance hasn't changed. The reason for that is, look, as you've seen from Q3, we have very strong cost control and we continue. Although going forward, yes, we will continue to invest, but we will benefit from some scaling of the business and therefore from our growth. We will continue to be selective in our investments with again continued strong cost control. We believe that that will allow us to maintain our margins and deliver on our medium-term guidance. Perfect. Thank you, everyone. Thank you, both. The next question is from the line of Charles Brennan from Jefferies. Please go ahead. Great. Good afternoon, everyone. Thanks for taking my questions. I'm gonna go with three as well, if I can. Firstly, can I just labor the point around market share dynamics? In particular, it looks like Red Hat's delivering faster growth than you. How do we get comfortable that in the areas that you operate, you're not losing market share? Secondly, just on the margins, I know you just addressed the medium-term margin outlook there, Andy, but can you talk to next year specifically? You've been increasing investments this year into a slowing ACV environment. The slower ACV this year will presumably have a dampening impact on revenues next year. Do you see any scenarios in which margins next year are actually full year on year? And then thirdly, just a detailed question on the numbers. Can you remind us where the contract assets come from in your business? Just looking at the numbers, it looks like revenue's up about $20 million year-over-year, but contract assets are up about $30 million. Okay, let's talk about market share dynamics first. Just to be very clear, Red Hat, since you specifically talked about that, their business. They combined all lines of business into one. Their emerging products, which are driven by OpenShift, as you well know, are in a more rapidly growing market than Linux, as we all know, because of the division between Linux and containers. They make up a larger proportion of Red Hat's total business than SUSE's emerging products, which is primarily Rancher. It looks like on paper that it leads to higher overall growth for Red Hat than SUSE. Again, that's because of the mix where the products are attributed and reported. You know, you can't read too much into that. We believe we're taking market share because we have a differentiated strategy. We've always focused on the ease of implementation, interoperability. We've always focused on mission-critical environments and workflows. You know, since Red Hat was an independent company for most its life, unlike us, it grew faster in the beginning. Now that they combine both businesses, their effective emerging product set combined with Linux, it's really hard to distinguish how much market share we're taking from them, and how much market share we're taking in general over them. Net of it is that when you look for dollar for dollar, line by line, and break apart the product lines like we do, purely mathematically, we are taking market share 'cause we're outpacing the growth of the market. When it looks at revenue and bookings and ACV, but particularly around revenue, which is the leading indicator in KPI for market share, you can see that we're outpacing the market growth. You know, we also have customers that, either publicly or not publicly, have given us success stories of takeaways from our competitors. You know, we don't have many the other way around. I think we can successfully conclude that purely based on mathematics and numbers and the revenue growth in CAGR as presented by the industry against what we've actually delivered, we would be taking market share away from the competitors. Andy, I think margins and the overall deep dive into the numbers is over to you. Yeah, sure. Hi, Charles. Just let me give you our view of 2023. Look, in the short term, we expect the macroeconomic environment to continue. Obviously, I think we all do to have an impact on our new business. We don't know how long this will last, and clearly we can't speculate on that. As you've heard today, we have taken and are taking actions to drive increased demand through product development and sales execution, and we expect this to start to impact our business over the coming quarters. This will take time, but it will give a positive impact. The current macroeconomic uncertainty, the buildup of our differentiated products, and sales motions make it difficult for us to guide you on what 2023 will look like at this particular point in time. Yes, the lowering of 2022 ACV guidance will impact 2023 revenues, lowering the deferred revenue we enter 2023 with by circa EUR 30 million, although we will still carry very significant deferred revenues into 2023. However, our underlying markets remain strong, as we've said, and we expect to deliver healthy growth in 2023 as we build back to our medium-term guidance over time. We also expect our margin to be similar to that in 2022. If I can just then go on just to your contract asset question. The contract asset, Charles, is the IFRS 15 adjustment, and it's the buildup as we've grown in the year. It's the buildup of commissions that effectively get paid out and amortized over future circa seven years. That's what the buildup of that is as we grow. Okay. Thank you. The next question is from the line of Mohammed Moawalla from Goldman Sachs. Please go ahead. Great. Thank you. Afternoon, Melissa and Andy. I had two, actually. The first one was you talked about some of the attrition issues in the sales force and execution issues. I'm just curious to understand, you know, where kinda close rates have now shifted to or pipeline conversion and then also the pipeline growth and what are the kinda assumptions you have built in your revised guidance? You know, this second question kinda links back to the margin. Do you feel you need to kind of reinvest back into the, particularly around the container management business, and that sort of the sales force to try to kind of, you know, drive that reacceleration? On that context, container management or emerging growth, should we see that sort of recovery of the growth to be perhaps more backend loaded in terms of the time horizon? Thank you. Sure. Let me take a bit of that, if I may, and then I'll let Andy talk about growth or return to growth timeline. I think, you know, when I look at the sales force, I think the biggest learning that we've obtained in the last, call it six months from the macroeconomic pressures of the economy, have really been around the criticality around having an experienced sales force that can sell a differentiated product or sell support when there's no differentiated product, and the differences of that approach. When there's economic pressure to sell a product that's differentiated with things like certifications and security enhancements, et cetera, they will always be bought first. The impact that having an inexperienced sales team and being able to sell or offer a free product with no differentiation and just support in a market where adoption has been highly increased over the last year has been difficult. What's happened is that the sales force, both the attrition earlier part of year in Q1, plus the investment we made in new salespeople. We talked about in Q1 and Q2, a significant investment in sales, them still being new has had an impact, not just simple ramping, but ramping in an economic time that's extremely volatile. How do you get customers to actually pay for support when they can run the software for free, and the market is much more saturated with skills than it had once been, let's say, two years ago? With Rancher, the commercial product capabilities are the same for the only version we've got, which is the free product. The difference is that, with Rancher, we're only selling enterprise support and having a new sales force that is predominantly focused on, you know, just by pure numbers, right? On being able to sell value against a differentiated product. The ramp time's just been a little bit longer. We always said it was gonna be six months, but with the economic volatility, it's just been even longer. We've already overhauled the entire sales force. We trained them. We certified everyone to be able to sell not just support for Rancher, but support for a free version of software in an economic volatile period that we're in now. How to really sell the value of the support. We're better able to, you know, position the customer value, differentiate, eventually, which will happen next year on a new version of Rancher that's got additional enterprise capabilities that's going to mimic that of Linux in way of the exact model, security certifications. We've invested, you know, you said it yourself, we've invested a lot in the early part of this year in creating a robust and solid and technically secure Rancher product. I mean, perhaps so secure that it's stable and in such a way that doesn't necessarily require a whole lot of support, because it's been operating so well. That's been a really good news for us. It's been overall churn, but, you know, I think when we look at, you know, the attrition, the new hires and the sales force on average, and what they're used to selling, the ones that were traditionally here, the Linux-based product that's highly differentiated, it's made that transition of selling, you know, giving the free product and selling the support a little bit more difficult. The pipeline continues to grow. We talked about pipeline and the growth of the pipeline quite extensively in Q1 and Q2. The pipeline still exists. I mean, the pipeline is not declining, and the pipeline is oftentimes, like I said, a follow-on of a leading indicator, which is usage, downloads, and unique users. As long as we continue to drive usage, the longer we continue to drive adoption, unique users, downloads, that will inevitably continue to increase our pipeline and then eventually continue to convert them into paid versions of the software. We don't actually disclose specific close rates per se. But Andy, shall I give next to you the second part of that question around, you know, conversion or close rates or anything else I might have missed? Thanks, Melissa. Yeah. Look, as Melissa said, the pipeline is we have a strong pipeline, but what we saw at the end of Q3 was what we expected to convert didn't convert. A reasonable significant proportion of those have converted in Q4 already. It's this delayed decision-making, which made it particularly difficult in Q3 for us to predict. We are not losing these deals. They're not going away. The pipeline is not being cleared out by customers walking away or alternative products being used. We're not seeing that. It's just taking us longer to convert the existing pipeline. As I say, the key thing is we're not losing to the competition here. If I just move on to the sort of the growth, the CMP, ACV growth. Look, we expect the actions we're taking to progressively have an impact over time. Clearly a big driver of this is gonna be what's happening in the macroeconomy. Clearly that is a big driver in the future. As that eases, that will again aid our growth in the future. You mentioned a little bit about margins, I think, and the expectation or the impact on the margins. We're already investing in sales and have done, and already investing there. We've been investing in engineering, and also in marketing. We're already investing there. Some of those costs are there already in our Q3 statement. We will, as I said, continue to specifically invest in certain areas, but we are very conscious of the macroeconomics at the moment, and that's why we are very, we have very strong cost control at this moment in time. Great. Thank you. The next question is from the line of Vihren Jordanov from Cairn Capital. Please go ahead. Hi. Thank you for taking the question. Can you maybe let us know at this point in time, how much of your revenue is generated by contracts that are paid up front, and how much is generated by contracts that are paid on a monthly or quarterly basis? Yeah. Andy, do you wanna take that and how revenue is attributed? We might wanna also talk about cloud and cloud ACV and how that converts. To accelerate our revenue, right? That's why we're seeing revenue continue to accelerate in conjunction and alignment with cloud revenue. I'll let you answer that. Yeah, sure. Look, the significant majority of our revenues come from multi-year, one year plus contracts. Well, we have had some very long contracts, but between one to five years typically are sort of normal end user contracts. If you look at the cloud, which is a proportion of our business, we don't disclose the proportion, but it is a reasonable proportion of our business. The cloud is growing. The ACV in the cloud, the contract lengths has remained relatively stable, but the ACV in the cloud is a mixture of pay-as-you-go, which is again, it continues, and it keeps coming, and it keeps growing. That pay-as-you-go and as customers go through the journey, around 18 months of having pay-as-you-go, which is premium priced, they then convert to reserved instance between one to three years. Whilst that is discounted at a lower price, it then gives us the payment upfront for those future years. The cloud does effectively lower our average contract length. Having said that, our core business, our end user business, has seen longer contract lengths that offset that. I can't give you a split of the revenues, but I can tell you that at the end of the day, a very, very high percentage of our revenues come from contracts in excess of one year. Okay. In terms of the actual payment timing, you know, can you maybe just give us a ballpark split? Yeah. You know, what is upfront and what is recurring. Yeah. Monthly or quarterly? The cloud revenues come at a. The pay-as-you-go revenues come at a, in effect, in arrears. A Hyperscaler, for example, will report to us in arrears what revenues they've taken, and they will pay us in arrears. If it's a reserved instance or if it's a non-cloud ACV, those contracts, whether it's one year, two year or three year or five year, those contracts are paid upfront, and those are the contract lengths that we report. That's if you pay upfront, we report the ACV, which is the one year, and then we put the deferred revenues for year two and year three that will go into our deferred revenue movement and appear in our cash EBITDA. As I say, most of our payment terms are in advance, with the exception of the pay-as-you-go in the cloud, where that is paid in arrears each quarter by Hyperscalers. Yeah. Okay. Thank you. Got it. The next question is from the line of Johannes Schaller from Deutsche Bank. Please go ahead. Yeah, thanks. Hi, Melissa. Hi, Andy. Melissa, I think you touched on this in a few bits of your answers here and there, but maybe could you just go back into the churn situation in the workforce again, give us a bit more detail, particularly around what you have now in hindsight identified as the reasons for why people have left. Is it compensation? Is it the product? Other challenges and what you've really changed since then that gives you more confidence that the people you're hiring now will actually stay around for longer and be more successful. Also given that, I mean, just shortly before the IPO in the one two years, you did a major overhaul also of the sales organization already. As a second question, just in terms of North America, I guess that was also a region that was maybe a bit disappointing. Could you give us a bit more detail here on what happened in the quarter on the ACV side and also how we should look at that region going forward? Thank you. Hi, Johannes. Sure. Happy to do that. Let me address the churn in sales first. The churn that we're seeing was predominantly on the Rancher side in sales. It was almost all of the reason for the churn that we had. Almost all of it was related to wanting to be part of a startup business. These are folks that are used to being, you know, part of a startup community with new products. They almost consider themselves evangelists of product. Working inside of what would be qualified as a, you know, fairly good sized technology company with process and procedure, and less, you know, flying by the seat of your pants, I would say. The structure that we've incorporated for best practices of selling to create a world-class sales organization for a lot of the Rancher sales team was not commonplace. They were much more attuned to, used to, accustomed to, and preferred to work in a startup community. They are, like I say, much more they've called themselves evangelists more than they have salespeople. You know, we knew going into the acquisition of Rancher that we were gonna have an issue retaining people in sales. We knew that the culture of a fast-growing, mature tech company was very different culturally than that of a startup enterprise. You know, we knew that it would be difficult. Now, we've retained some key talent, they're still here inside of the sales organization that were part of the original Rancher sales team and then part of even folks from the original NeuVector teams. We've invested in them. We've put in retention plans, and they're ones that really do wanna stay at SUSE at the size and the growth and the trajectory that we have. So it's not at all related to necessarily, you know, product or service or anything like that. It's much more about the culture and style of running sales in a startup and probably, Johannes, has a lot to do with the financial reward associated with taking the risk of working in a startup than working with a large enterprise like SUSE. I feel confident that the people that we've hired since then, we're hiring them into SUSE, we're not hiring them into a startup. We went through a complete overhaul, as you said, a number of years, three years ago, actually, not last year, but three years ago, and then more recently added two more, you know, two leaders of sales, Imran Khan and Adam Spearing. Then we've just recently in June, hired Colin Brookes to help us run a part of the business as the Chief Commercial Officer, replacing Paul Devlin. Colin's only been here for a couple of months, and even still, the other two leaders have only been here for what it would amount to in Q3, six months. You know, we've hired the right people. They're committed to the emerging business or, you know, the ones we've continued to invest in and hire for Linux, have continued to be, you know, accelerate and develop and grow. We've had really good luck in hiring some amazing people, as you can see from the numbers. What's happened now is the last two months, essentially since June, we've seen a significant decline in the churn of our direct sales force. We're seeing now the benefit of the stability of our business, which we didn't have in the first part of the year. People are staying in. Churn's going down, people are being trained, people are more accustomed now to obviously the SUSE culture and way of selling and way of world-class organization. I'm cautiously optimistic. You know, even looking at the economic times that we have today, we were just overall seeing less churn, but you know, for us by far less than the sales team. I think that that's been dealt with. The North American disappointment. I'm gonna let Andy comment on ACV, but what I would say is that North America had a significantly smaller renewal pool this year, this quarter, excuse me, than we did, last quarter, Q2 or even last Q3. We do have new leadership and relatively new from earlier this year in North America. Obviously, as you look at the vision of the business and where the predominant volume of original Rancher sales folks sat, they were in North America. North America, with the churn and the new people coming in, combined with the macroeconomic impact, specifically in the North American market and the lower renewal pool, has impacted the results of North America. I am not concerned about North America. I don't have any worries about its ability to deliver, to meet this year's guidance and medium-term guidance at all. We have the right people, the right leadership, and we've hired really good folks into that market to be able to propel us and lead us with the emerging business, but also the core Linux business. I'm not worried about North America. Yeah. Melissa, I'd just add to that. It is. You're absolutely right there that the renewal pool, the other factor in there that's given a high compare is the retrospective consumption contracts. A high level of that was reflected in the 2021 ACV number in America. Yeah, it remains a strong market for us. But those are the two key factors that have driven the results. But it does still have a year-to-date result of 20% growth. Thanks, Melissa. Thanks, Andy. That's very clear. There are no further questions at this time, and I hand back to Melissa Di Donato for closing comments. For now, I'll close on our Q3. I hope that we've answered all the questions and perhaps any concerns you might have had before coming to this call. I hope that we have reassured you of the resiliency and the strength of SUSE's business, that the KPIs and the leading indicators are pointing to future growth as we reiterate our medium-term guidance and the results for this year. Thank you very much for joining, and we'll speak to you again next quarter. Ladies and gentlemen, the conference is now concluded and you may disconnect. Thank you for joining, and have a pleasant day.