Ovh Groupe

Hello and welcome to the full year OVHcloud 2023 annual results. My name is George. I'll be your coordinator for today's event. For the duration of the call, your lines will be in listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press star 0 and you will be connected to an operator. Please note, this conference is being recorded. Today's speakers will be Mr. Michel Polin, CEO, and Ms. Stephanie Disney, CFO. And I have a call over to the OVH team to begin today's conference. Thank you.

Hello. Good morning, everyone. I am Michel Polin, CEO of OVHcloud. Thank you very much for being with us today for OVHcloud 2023 Annual Resource Education. As you can see, we delivered a sustainable growth in 2023 with a total revenue that reached 897 million euros and a like-for-like revenue growth of 13.4% in line with our targets. we reached an adjusted EBITDA of 325 million euros and a margin of 36.3%, also in line with our targets of a margin above 36%. In terms of value creation, we are able to give you a strong proof point of strength of our model with a generation of 25 million euros on elaborate free cash flow in the second half of 2023. Regarding CAPEX, we invested 24% of our revenues in gross CAPEX, mostly new data centers, new R&D of new products, and we invested 16% of our revenue in recurring CAPEX, the CAPEX needed to maintain on revenue unchanged compared to the previous year. On the next slide, let's have a quick focus on the very strong last quarters we had. As you can see, we had a strong Q4 with a plus 14.5% like-for-like revenue growth, market with a very strong quarter for the cloud businesses, with public cloud growing at 22.8% and private cloud growing at 16.4%, driven by market share gains in particular. The trends we have driving this performance are, among others, a continuous acceleration in Europe after an already strong first nine months. growing demand for sovereign solutions quarter after quarter a continued ramp up our newly developed past platform as a service solutions and a confirmed high customer loyalty with limited customer churn and strong outback growth in this fourth quarter and the second half overall we have kept our cost discipline and change which led to an improving margin in H2 compared to H1, up to 37.1%. For the next slide, we are really giving the key differentiator to deliver growth and create value. OVHcloud is very well positioned on the market, structurally poised for strong long-term growth. The migration to cloud is still early stage with the trends of hybrid and multi-cloud, and we keep seeing new usages emerging such as, of course, artificial intelligence, for instance, which will be a new growth engine. We are very well positioned on this market and have strong key differentiators. We are the only European cloud provider with best-in-class technological offering that can help our customers make a difference when they develop their applications. We are the data sovereignty champion. With OVHcloud, your data are safe, while protected and immune to any extraterritorial load. We have the best value for money offering with highly performing products at very competitive, transparent, and predictable prices. And thanks to our unique, fully integrated industrial model enables we are world leaders in terms of energy and water consumptions. and our customers can benefit from one of the lowest carbon footprint in the industry and monitor their own carbon footprint thanks to our recently launched carbon calculator in the manager. The next slide shows the long-term investment strategy starting to bear fruit. As you know, we have key differentiators to succeed on the coin market along with a clear long-term strategy to gain market shares and to continue to expand. This strategy was presented during the IPU two years ago, and it starts to bear fruit despite the complex macro situation. We target new segments of customers, we address a larger market, and we continue to expand geographically. We have been delivering on three axes. On the left, on the key customer segments, we have strengthened our customer mix with larger accounts between 20 2021 and 2023, we have doubled the number of customers that spent more than 1 million euros at OVHcloud. We had almost 30% ARPAC growth during the period, highlighting our capacity to grow with larger customers. And we have developed a large and successful indirect channel with a network of more than 1,200 partners that are selling OVHcloud products and offering. In the middle, on the larger addressable market, We have made significant investment on products since 2021 by reaching 40 new path services in 2023 in all four seven pillars. We continue to develop the offering as the roadmap is not yet finished, but it already bears fruits and we are in the right direction to target the larger addressable market and start gaining market shares. On the right, then on the geographical expansion, we have also significantly investment in new infrastructure since 2021 as we will be present in 19 collection location by 2024 in 9 countries as we open in India this year and we have 45 data centers in 2024. We are focusing on increasing the occupation rate of all these new infrastructure and the recent acquisition of Griskell will give us more flexibility to open with much more lower capex, new small locations. But I will come back on that later. The next slide is about the example of container as a central piece to move toward cloud native application. On this slide, we want to do a quick deep dive on some products. The first one is Kubernetes, our best performing path today. which very quickly managed Kubernetes enables customers to manage their applications much more easily and to scale in a seamless way with very few constraints related to the infrastructure. Also, it gives the possibility to customers to upgrade only a part of their application without impacting their other services. Kubernetes was not one of the first paths to be rolled out. The ramp-up phase was longer than we observed with new paths as we have improved our overall customer experience for those products and our customers are more and more aware and educated on the products we have. We continue to strengthen the enablers products that ease the possibility to make products work together and improves the cross-sell rates. On the right-hand side of the slide, we show that the ramp-up in terms of revenues versus capex look like for Kubernetes. This was the first PaaS we launched, and it is a good illustration of how it works for our older PaaS solutions. As you can see on the chart, we have some development CapEx in front before the product generates revenue, and then only have variable hardware CapEx related to the infrastructure on which customers use Kubernetes. The business model of all our PaaS is very interesting for additional revenue we make on the same amount of CapEx, and that we have only because we are selling infrastructure. Let's talk about, as we said last quarter, the AI wave represents an incredible opportunity. It's a lot of questions on the use case and the business model. To any company, the tech companies or usual companies that want to deploy a solution, you need four things. You need powerful, I mean, you need really powerful compute and storage capacity. You need data and clean data and private data. You need software and LLM. and you need also expertise. And OVHcloud allow affordable access to all of them. And that's why at OVHcloud we have built a clear offering based on these four pillars to serve our customers on use cases that have been notified. Because you need all of them to be successful in the AI deployment. The first pillar about compute on which we offer one of the best technological offering is computer storage and network. We have been rolling out our new best-in-class GPU from NVIDIA, one of our partners, and we will continue with H100 very soon. Network and storage are also key for AI workloads, and we are very proud of having one of the best technological offerings in these two aspects. The second one, data, data set. How to provide tools to create private, clean data sets which really allow all the elements after to grow on AI and to model and to train models. And OVHcloud has an existing offering that enables customers to efficiently, with full transparency, to have these private data sets. The third pillar, of course, of the AI product layer is the software and the LLM, the data platform, the algorithm. And we have already rolled out some of our products and we continue to develop others internally. for us and we will give our customers the state-of-the-art products to build their AI use cases on our products and that will drive consumption of infrastructure. The last but very important pillar is expertise and we have really improved our customer assistance and our ability to better serve customers. Moreover, we have introduced printer services to help our customers to introduce AI technology within their own workloads. All these initiatives are part of our selective investment plan and have clear business models behind. Moving on the next slide, I will give you some highlights on our business performance. So let's now have a look with more details at 2023 business performance. First of all, the growth in the cloud business has been very strong at 16.3% like for like, driven by the public cloud with a growth of 21% reaching €155 million in absolute terms. The private cloud has been growing significantly, also at 15.1%, reaching a total of €560 million. The web cloud had a more muted year with a growth of 3.1% for a total revenue of €183 million. On the next slide, we have more details on the last quarter performance. First of all, Q4 has been the strongest quarter of the year with a 14.5% organic growth. If we look at each segment, we see that we had a sustained business dynamic in the cloud segment with a like-for-like growth of 22.8% in public cloud with a continued acquisition of new customers and an unchanged good trend of ramp-up with existing customers. We have reached €16 million of annual revenue rate in September 2023 in PATH, which is also contributing to the good quarter. In Pride Cloud, with 16.4% like-for-like growth, we are definitely growing faster than the market and gaining market share. The BarMetal Cloud registered a strong quarter driven by France and Europe. Hosted Pride Cloud delivered a double-G growth supported by new offerings. and this segment has also been fueled by the continued growth in ARPAC and we have reached €8 million of annual revenue rate with our Secnim Cloud offering in France. Finally, in Web Cloud, we grew single digit with a good enterprise channel. Overall, the legacy sub-segment telephony and connectivity are waiting on the segment growth as we will be growing at plus 6% life for life without these sub-segments. The next slide is about the cloud business increasing contribution for fast-growing PaaS and sovereign products. As you can see on this slide, the cloud business has been highly resilient with a sustainable growth of 17.7% in Q4, and this high growth trend has been confirmed quarter after quarter since already two years. The cloud businesses have been fueled by two new offerings, the PaaS and the Technium Cloud. On PaaS revenues, Revenue has doubled in one year, and we have reached 10,000 customers, and we continue to work on improving the cross-sell and the number of paths used by our customers. The other new offering is Technicode, which is quite recent. It has been growing strongly thanks to our partners and to our indirect and direct sales teams. It has been multiplied by four in one year and reached €8 million of revenue in RRR in September 2023. The next slide is about customer loyalty and ARPA growth. As I have been saying previously, as you can see on the left-hand side of the slide 15, we have a continued high customer loyalty. with a net revenue retention rate at 110% in 2023 and an exchange low churn compared to previous years. As we keep growing with our existing customers and with larger customers, as we add another year of double-digit RPAC in full fiscal year 2023. Finally, the acquisition of customers also has a good trend, especially in the cloud business, with 21,000 new customers in public and private clouds. On the next slide, we'll go through our recent acquisitions, GridScale. So GridScale is a German company specialized in edge computing. The acquisition has been closed early fiscal 2024. GridScale team will bring us a unique expertise for deploying public cloud regions with very limited upfront investment, as their public cloud environment runs on a very light infrastructure. we will be able to leverage very quickly our existing point of presence to create new areas of availability for all our products. So thanks to Gridscale, we will accelerate our time to market while reducing our infrastructure capex. But now, let me now hand over to Stéphanie for the financial details.

Thanks, Michel, and hello, everyone. I'm Stéphanie Desnis, CFO of EVH Club. Thanks for being with us. So let's have a look to our revenue by geographies first. We've been growing double digits in all geographies in 2023. In France, revenue growth in Q4 was close to 20% life-for-life in public and private clouds. In Europe, excluding France, we had another strong factor, particularly in Central Europe. In the rest of the world, the Indian DC started to contribute and it continues to have an optimization of workloads from customers in North America. On the next slide, as Michel said at the beginning, we registered in Q4 our strongest quarter of the year and reached on a full year basis a life-long growth of 13.4%. This growth was fueled by continued strong growth from the cloud businesses and by twice increases implemented progressively throughout the year, which contributed 2.7% to the growth figure. Moving to the next slide, we have a detailed view on our EBDA. And as you can see, with a margin of 13.1% in H2, we had almost a 200 basis points improvement in our EBDA margin between H1 and H2, thanks to our persistent cut discipline in H2. We will keep this discipline unchanged in full year 24. All in all, we reached an EBITDA of €325 million, a margin of 36.3%. Let's do a deep dive on two of our main costs on the next slide, personnel and electricity costs. So, as we said previously, we kept a strong cost discipline in H2 that bear fruit. If we look at personal costs, hiring were concentrated in H1 and we worked on improving productivity of our teams in H2. Our focus on product development remains unchanged by further strengthening our tech teams. For 2024, we will maintain our selective approach in hiring. Keep in mind that the integration of Gridscale will wait on group margin by a few basis points. On the right-hand side of the slide, we have a deep dive on electricity costs. We had a reinforced visibility with our active engineering strategy. In 2023, electricity costs have increased significantly compared to 2022 and reached 7% of our revenue, of which 2% came from price effects. For 2024, we are edged at 94%, with the remaining 6% coming from Germany. The price at which we are hedged is comparable to 2023 average price. We are currently hedging for 25 and continue to work on long-term corporate CPA as we want to sign in France and Germany to increase our long-term visibility and to secure low carbon power. If we now have a look at our operating income, we've improved by 8 million euros to reach minus 12 million on a full-year basis. It includes some non-recurring expenses related to Strasbourg and some fees related to acquisition. In our DNA, on top of activity growth, we have a ramp-up in capitalized projects and right-of-use amortization that drove in total the increase of 39 million euros. Below EBIT, we have interest related to loans that reached €17 million. We will have a more detailed look on that later, and some Forex impacts of €6 million. Let's move to the next slide on the cash flow statements now. So as you can see, with the normalization of our growth capex, continued improvement and efficiency and stock consumption, We've generated 25 million euros of unlevered free cash flow in H2. Let me give you on the next slide a bigger picture on what we've been doing and what we mean by normalization of gross capex. In essence, we are now entering a phase of normalization of our gross capex and we're paving the way to cash flow generation. Since 2021, we've consistently expanded our infrastructure network and server capabilities. As Michel previously mentioned, we're on track to reach 45 data centers by the end of 2024, positioning ourselves to capture a significant share of the cloud market's growth. However, it was nothing that was also incurred in 2021 and 2022 exceptional capex related to stressful incidents post-COVID supply chain management and product development initiatives that have yet to yield revenue. Now that we have achieved substantial market coverage and have navigated past these one-off challenges, we are reaping the benefits of our investments and optimizing the data center occupancy. Consequently, our cash flow generation is improving without compromising the growth. On the next slide, we have a detailed view of our growth capex. And as I previously said, we're normalizing our growth capex. We had exceptional capex on servers in 21 and 22, but it's been normalizing in 23, and it will continue in 24. You can also see that in the last year, we've been investing around 10% of our revenue in both infrastructure and product development. We will continue to invest, especially in product development, where we look at it as an investment stable in absolute terms, but with a weight in percentage of revenues decreasing going forward. Overall, our model is structurally efficient and flexible, and we keep working to improve it and progress on our trajectory to generate sustainable free cash flow as we did historically. Moving on to the next slide, I want to insist on the strength of the balance sheet with positive trends on cash generation and our investment plan being more than fully financed until end of 2026, when part of our debt will mature. At the end of the year, our net debt to EBITDA ratio is slightly below two times, stable to our first hours at this low level. Our debt is hedged at 75%, and our current average interest rate is at a low 3.7% all in. We have more than 500 million of available liquidity, which gives us a strong visibility on our financing as our investment plan is more than fully financed. And on this good note, I would now like to hand over to Michel for the outlook and key takeaways.