Ovh Groupe

Hello and welcome to the OVH Cloud Q1 fiscal year 2024 revenue. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen only mode. However, you'll have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. Today's speaker will be Michel Paulin, CEO and Stephanie Besnier, CFO. I now hand over to OVH team to begin today's conference. Thank you.

Hello, everyone. I am Michel Paulin, CEO of OVH Club. First of all, I would like to wish all of you a very happy new year. Thank you very much for being with us today for our Q1 fiscal year 24 conference call. As you can see on the slide, we had a good first quarter of the year with a 12% like-for-like revenue growth, marked by very good growth levels for the public and the private cloud as they grew respectively by 18.9% and 14.9%, driven by market share gains, especially in the private cloud. The trends we have been behind this performance are, among others, Public and private cloud remains strong with growth engines, a continued growth performance in Europe as a successful consequence of our sales and marketing focus in this area, and a strengthened demand for our sovereign solutions and continued ramp-up of our newly developed SaaS solutions. So the next slide, we can see that if we quickly delve into the cloud business, Public and private cloud, we see that it continues to have a high level of growth, quarter after quarter, with this quarter a 15.8% growth, despite all the micro uncertainties. Our Signum cloud revenues reached 9 million euros RIR and was multiplied by four versus last year, and our PaaS solution reached 17 million euros RIR and grew by 75%. When we look at customer acquisition, we had some very interesting deals around the world in cyber security, public sector, software, and defense. The next slide is about AI. As part of our Q1, we have been working a lot on artificial intelligence. AI is a massive way for our customers, and as we always said, we are ready to accompany them in the revolution. To adapt Artisans Intelligence solution, the companies must have four attributes. Large infrastructure and storage, data and private data sets, software and skill. And our ambition is to provide the tools which allow them to all the enterprise to have access to these four pillars with simple, affordable and performing solutions. And if I select only a few ones, I just want to explain what we are doing. On the large-end infrastructure and storage, we have a full range of NVIDIA GPUs available today on the market. V100, A100, and since a few days, we have now H100 solutions, which is available to all our customers. And we will make available the L4, L40S in the coming weeks. And we are already working intensively with our partners at NVIDIA on the new generation of GPUs that will come in the next quarters. But also on the software tools, which are very important. We do not have the intention to develop our own generative LLM, but we have applications which allow the customers to implement these LLM in their solutions. AI Notebook, AI Training, and AI Deploy, which are very successful. And now we have AI Aid Builder and form in a beta version, which will bring additional capabilities for our customers with the same target of making AI easier, simple to deploy, and leverage. And of course, after all, while maintaining the highest level of data privacy and data sovereignty to protect data, but also to protect the, I mean, all the private data, sorry. The next slide is about sustainable clouds. One key aspect of our vertically integrated model is that we are sustainable by design. Rankings after rankings, we keep showing that we are leading the way. We disclose in our 2022 UERD our eligibility and alignment to the UE green taxonomy, which focus on six environmental objectives. We are very proud of reaching such high level as the measurement is highly demanding. As you can see, as mentioned in EY2026 barometer, we are way above our tech peers in all KPIs. It's another example of how sustainable is our model. But now, let's now hand over to Stéphanie for more details on our financial performance.

Thank you, Michel. Hello, everyone, and happy new year as well. So I am Stéphanie Besnier, the CFO of OVHcloud. So as Michel said, we registered in Q1 a good level of growth fueled by public and private cloud. Our growth dynamics remain strong, even if our customers are still careful in their spending. And we benefited from 3.7% of price effect in this quarter, which is in line with our expectations and in line with our full year estimate of between 1% and 2% price effect. Moving to the next class, we have a more detailed view of our performance by segments. If you look at each segment, we see that we had a good business dynamic in the public cloud segment, despite continued cautiousness from customers, with a like-for-like growth of 18.9% in public cloud, fueled by strong growth in Europe and good customer acquisition in the rest of the world. Our past solutions have reached 17 million euros of annual revenue rate in November 23, growing at 75% year-on-year growth on Q1, which is also contributing to the good growth level. In private cloud, with plus 14.9% life-for-life growth, we're definitely growing faster than the market and gaining market share. Hosted private cloud accelerated in all geographies, driven by sovereign product in France and by new offerings released a few months ago. Finally, in web cloud and others, the growth was minus 1.4% despite good traction from web hosting thanks to a recently revamped offering in this segment and also to domain. We had a high comparison basis versus Q1 23 as we had a very good Black Friday campaign last year. Overall, if we exclude legacy sub-segment telephony and connectivity, like-for-like growth was 2.5% on WebCloud versus last year. Now, let's have a look on the next slide to our revenue by geographies. Europe has been leading in terms of like-for-like revenue growth, with high growth in all segments in the region, with Central and Southern Europe performing particularly well. In France, revenue growth in Q1 was 9.3%, with double-digit growth in public cloud and private cloud, even if slightly below Q4, and the country was mostly impacted by the negative performance of web cloud in the quarter. Excluding web cloud, our cloud businesses in France grew by 16.5%, a very dynamic growth again. In the rest of the world, we had a very good quarter in private cloud and a strong double-digit growth in public cloud, even if it slightly slowed down compared to previous quarter. Before giving the floor back to Michel for the outlook, we can have a quick look at performance by go-to-market on the next slide. So on the left-hand side of the slide, you see that digital represents 45% of our business. and we had strong level of growth in public cloud in France and that both public and private cloud grew strongly in the rest of the world. For enterprise, which is now 55% of our business, we had an unchanged strong fraction from partners and acceleration in private cloud driven by home private cloud and strong growth in public cloud in rest of Europe, highlighting the success of our sales and marketing organization in the region. Thank you, and I now hand over to Michel for the outlook.

Thank you, Stéphanie. So we confirm all our fiscal year 24 and fiscal year 25 targets. As a reminder, for 2024, a like-for-like revenue growth between 11% and 13%, an adjusted EBITDA margin above 37%, recurring capex of around 16% of sales and gross capex of around 24% of sales. We will also be positive in unlevered free cash flow in the second half of the fiscal year 2024. On the back of tremendous shifts in the microeconomics environment and increasing cost of capital, we have managed our operating model to be more efficient, more sustainable, and more cash generating in the short term and in the longer term. We maintain a steadfast belief that the cloud transition is still in its early stage and will continue to unfold over the coming years. This trajectory will propel substantial growth within the overall market and notably for OVHcloud. We will be able to provide more color on the longer term during our investor day next week. And as you see in this slide, We have our own investor day in London, and it will take place on January 17th in Canary Wharf. The team will be very, very pleased to share more colors on our differentiating strengths, strategy, and outlook. It will be a great opportunity to reconnect with you all in person. We can now start the Q&A session.

Thank you. If you would like to ask a question, Please signal by pressing star 1 on your telephone keypad. We will take the first question from line Mark Hyde from Morgan Stanley. The line is open now. Please go ahead.

Hi, Michelle and Stephanie. Happy New Year, and thanks for having me on. I just have one question on the growth outlook for 2024. Obviously, in Q1, you delivered 12% for life growth in the first quarter, which is at the midpoint of the four-year guide. So could you just help us understand how you think about the phasing of growth through the year? Should we expect to see growth slow as the price effects moderate over the course of the year, or are you baking in some recovery in underlying market demand environment? Thanks.

Thank you for your question. So our growth in Q1 was a bit depressed due to web cloud comparison basis. When we look at the underlying volume growth, we expected to pick up progressively. We have seen a very good customer acquisition in Q4 from last year and Q1. And we know that the cross-selling of our new customers next time, that's very much our focus now. And we will increase their impact progressively to help them ramp up with our product. So that should support the growth of our upcoming partners.

Perfect. Very clear. Thank you.

Thank you. We will take the next question from line Toby Oak from JP Morgan. The line is open now. Please go ahead.

Yes. Hi. Good morning, and thanks for the questions, and Happy New Year to you as well. Just a couple from me just on the cloud segment growth rates. So just firstly on the public cloud side, slightly softer growth there in Q1 just versus the Q4 exit rates. and you called out continued cautiousness in cloud spending in Europe and France. Have you seen customers becoming sort of incrementally more cautious in Q1 versus sort of what you saw in Q4? And when do you think it's realistic for us to be thinking about a reacceleration in growth in the public cloud? And what do you see as the most important drivers of any potential reacceleration? And then just secondly, just on the private cloud side, specifically in bare metal cloud, you're seeing an acceleration in the rest of the world, but a slight slowdown in Europe and France. Again, what are the drivers of these two different dynamics across the different regions for bare metal? And should we expect these trends to continue? Thank you.

Okay, thank you for your question. So if we take a step back on the public cloud and if we look at the last two years, we've been growing between 18% and 23% with some quarters better than others. Q1 is in line with this trend and is actually growing faster than Q1 last year if you look at those numbers. Now, to give you more detail on the performance, like I said, we have a very good customer acquisition. We have rolled out new offerings and specific marketing actions to fuel this, and it's working. Since summer, we had a nice increase in the digital traffic of our website, and we've also started to see, since a few months, an increase in our conversion rate. So, again, we had a good volume of customer acquisitions. Now, what we see is that these customers have a lower average revenue than we used to have. So, clearly, our focus, and that's where our guidance is based, is to make sure that these new customers' rent-up is as fast as possible and that we can cross-sell as much as possible other services. And that will fuel the growth for the coming quarter.

On the second point, which is about metal, I just want to remind that we have a very focused go-to market by regions. On the rest of the world, we are mainly digital, which explains also why we have different types of profiles of customers, mainly SMEs and pure tech companies, compared to the Europe where we have much more enterprise markets with larger workloads and capacity. And we know that when the customers are more enterprise, they are aware and they are still very conscious about the cost control And that's the reason why we see a different dynamic between the two regions. The second point, in the rest of the world, we have the U.S. country, which is today included, and it's the second largest country for OVHcloud. And we see also that in the U.S., which is always at the front end of the market, that there is a slight recovery to reinvest compared to what we've seen in the past. So I think that explains the reason we see in the market of the different momentum that we have to compare the rest of the world with Europe.

Thank you very much. And if I could just squeeze one more in, actually, just on the web cloud, just on the connectivity and telephony sub-segment driving the weakness in that segment. Again, sort of similar thing on kind of route from here. How do you expect... that sort of weaker activity to continue, and when do you think it's realistic for the overall web cloud segment to perhaps return to growth?

Thank you. As we said, in the web cloud, we have what is more telecommunication, which is connectivity on telephony, and which is more pure web cloud, web and domain. And definitely, there are two different dynamics, where the telco, which is mainly in France, is more than stable because the market itself is very, very low growth-driven. What we see today, and we've seen that also with the Black Friday success, is that on the web cloud, on the contrary, we have rather a good dynamic at the end of the year. And in domains, for example, we have a very strong growth during the last few months. And that's the reason why we are very confident that we will get back to the positive momentum for the whole web cloud industry Even so, the connectivity and telephony is, I mean, rather stable. So that's the reason why we are very confident that thanks to everything we're doing, I mean, very focused on the marketing, very focused on the innovation, that WebPod will go back to growth for the next quarters.

Perfect. Very clear. Thank you.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the next question from the line. Ben Casillo from BNP Paribas. The line is open now. Please go ahead.

Great. Thanks very much. Good morning, Michelle and Stephanie. Question really, you might address this at the CMV, but since you pointed out the numbers there in the results, just around the PaaS and the Sectrum Cloud annualized Revenue some attractive growth there. I guess my question on that is could you share some thoughts on your expectations? In terms of scaling those two exciting opportunities in the next 12 to 18 months. How do we think about your ambitions? How what are you seeing so far in terms of uptake? Relative to actual your expectations a year or two ago. Thank you.

I Will start with sickening cloud You've certainly seen a few days ago that we have confirmed our investment and our focus on Technium Cloud for main reasons. The first one is that, as you know, it's becoming in Europe a very, very important focus. And it has been react, I mean, I would say, regenerated by the fact that the fee side in the US has been extended and maybe in terms of timing, but also maybe extended in terms of perimeter. And so there are a lot of concern in some governments, but also large corporations in France, about how they are going to protect their sensitive data. That's the reason why we believe that Segnim Cloud, which is today a very fast-growing segment for OVHcloud, is a very good investment. And that's why we are continuing to propose new products. We are now the new certifications. We extended with the third data center in Gravelines. And we have given to the ANSI the ambition to certify all the PATH, the 40 PATH solutions for the next years, because we believe it will be a compelling offering. Today, we are the number one Insectium Cloud in France, but also we believe that there is a second opportunity, which is that in Europe, there is a UCS certification, which is today in debate. and they are more and more concerned at the European Commission about this data sovereignty and data protection. And we do believe that we might have the capability to extend what we have been successfully implemented in SeqNIM Cloud outside, in Germany, in Italy, in Spain, because this is definitely something which is becoming a real concern for the public sector, but also for the health sector, for the banking sectors and more and more to the industrial companies across Europe. On the PaaS, today we continue to develop the offering. We have announced during our summit that we will achieve 40 solutions of PaaS. Today we have a lot of solutions which are in alpha and beta and we are gaining all the feedback for our customers and our prospects, and we have a very, very rich and dense roadmap of launching the PaaS solutions, especially in Q2, which will allow us to continue to accelerate our growth on PaaS, and also will allow us to increase the ARPAC revenue per customer by cross-selling and up-selling and be able to promote more and more services for each customer in sold days. Because, as you know, we are very focused to continue to accelerate our growth by focusing by acquiring new names, but also to increase the revenue per customers by cross-selling. And the path is really a very strong, I would say, key to open and to develop new revenues per customer. That's today what we are doing, and that's our focus today. in terms of research and development and marketing and sales operations.

Understood. Very clear. Thanks very much.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the next question from line Derrick Markham from Associate General. The line is open now. Please go ahead.

Good morning, Michel and Stephanie and Benjamin. Happy New Year from my side as well. One question on price and one question on platform as a service. On price, I would like to understand how we should reconcile or how we can reconcile the fact that in Q1, it's almost four percentage points positive impact on your top line growth while for the year you are guiding on one to two percent impact one to two percentage points impact so what would make the difference between the low end and the upper end of the range because it means that if we shoot for the low end it means that you will or you assume that you will have almost no price impact as of Q2 and onwards. That's for price. And on platform as a service, it would be interesting to know what would be your best case in terms of lending for the year, at the end of the year, in terms of IRR. So 17 million euros in Q1, as you said, plus 75% of the year. What's your target for at the end of the year?

Thank you, Derrick. So on the price, you remember that we launched our repricing campaign, a specific repricing campaign at the end of Q1 and beginning of Q2 last year. So that explains why we have this impact in Q1 mostly. We expect this impact to smooth during the year, and now on the rest of the quarter, One of the key elements would be also the coming from our past customers and the mix of our products. So that explains the range that we've given of 1% to 2%, which relates mostly to this impact that we have in Cuba. On the path, I mean, we give more information on the investor day on our strategy, but as you know, we don't guide on the specific performance. You see that we still have a very good dynamic that we are very happy with, and the focus is very much to accelerate the launch and the ramp-up of our new products.

Can I add just a follow-up, Stephanie? On the breakdown between ARPAC and new customer acquisition, can you help us to quantify the two in Q1? So out of the 12% organic growth, what is coming from new customer acquisition, what is coming from ARPAC?

Well, we don't disclose this kind of level of information. I mean, the indication that it's on pricing is 3.7% again. And what I can tell you is that the dynamics is very positive on customer acquisition. And in sub-segment, we have this lower RPAC from our new customers that we will focus on improving over the next quarter.

Thank you very much.

Thank you. There appears no further question at this time. I'll hand it back over to your host for closing remarks.

Okay. Thank you for your questions. As a takeaway, we had a sustainable growth in Q1 fiscal year 24 with a revenue reach of 240 million euros. Our growth was 12% light for light and 15.8% for public and prior cloud. And our net revenue retention rate has reached 110%. As main highlights for the quarters, public and private are our main growth engines. We will achieve EU green taxonomy way above our peers, and we launch new AI solutions. And finally, we confirm our targets for 2024 and 2025. So thank you and have a good day, and see you at the Investor Day. Thank you.

Thank you for joining today's call. You may now disconnect.