Ovh Groupe

Ladies and gentlemen, welcome to the OVHcloud quarter one for your 2025 revenue. Today's speaker will be Benjamin Refkoleksky, the CEO, and Stephanie Besnia, the CFO. I now hand over to OVH team to begin today's conference. Thank you.

Hello, everyone. I'm Benjamin Refkoleksky, the CEO of OVHcloud. So thanks very much for being with us today for our Q1 FY25 revenue conference call. and we would like to wish you a very happy new year for 2025. So let's start with slide three for the key highlights of our Q1 FY25. So as key highlights for the Q1 FY25 publication, we generated €264 million in revenue. We had a solid start of the year with a like-for-like revenue growth of plus 10.1%. compared to last year. And this is on track with our FY25 revenue guidance of 9% to 11%. We also confirm all of our FY25 guidance. And as you can see on the right-hand side of this slide, this solid first quarter growth of 10.1% is driven by an acceleration in public cloud at 15.8%, like for that growth, a robust performance in private clouds at 10.2% like-for-like growth, and a high revenue retention rate at 109%, demonstrating strong client stickiness. Finally, we are pleased to announce the success of our public share buyback offer, which was fully subscribed, enabling us to realign our shareholder base with the company's new development phase. So let's move to slide four and the pillars of our new development phase. I wanted to give you an update on our vision for OVHcloud. OVHcloud has succeeded in building up strong core business fundamentals and we will continue to leverage them to deliver our two priorities. First, on the left, we are now focusing on operational efficiency of our fundamentals to grow revenue and to leverage productivity. And this will help us to deliver more predictable and profitable growth. Our second focus is to improve structurally our cash generation. It's critical to our long-term success as it ensures a capacity to continue to invest and innovate. Then, we are strengthening two of our future revenue growth upsides. First, we'll continue to reinforce our position as a global player in data sovereignty solutions. You know that there are growing concerns around data privacy and security, and we are committed to provide our customers with trusted cloud solutions. The second upside is about enhancing our public cloud product offering to answer customer growing needs. As an example, we'll continue to strengthen our AI solutions, which are highly demanded by customers. So these two priorities and these two growth upsides are the pillars of our vision for OVHcloud to deliver on our financial targets. And let's move now to the next slide to highlight business achievements of Q1 FY25. Indeed, I would like to share with you some of the latest developments that we achieved in Q1 2025. Firstly, as you can see on the left-hand side, we are excited to keep developing our AI offerings to provide our customers with the computing power and the solutions they need to build, deploy, and manage their AI workloads. To illustrate this, we have taken two examples. OVHNAB has supported the digital services company Soprasteria in the deployment of its engineering platform by providing GPUs and platform-as-a-service path solutions, including our AI deploy solution. Another example is Jalios, a French player in the digital workplace field, which recently developed its collaborative platform by adding AI tools such as writing assistance, document summarization, and the creation of agents based on OVHcloud's AI endpoint solution. Then, as you can see on the right-hand side of the slide, to drive international growth and to meet the regional demand, we keep expanding our global footprint. We'll open a new 3AZ cloud region in Italy, in Milan, by the end of calendar 2025. And this region will offer to our customers a presence in three geographically closed data centers that we call availability zones, so that they can benefit from high resilience and low latency between the three data centers. And this offering will be developed to fuel public cloud growth. In parallel, to support also our edge strategy, In Q1, we have continued to open local zones across Europe and the United States, bringing now that number to 17. And local zones are the small data centers in co-location mode to grow public cloud in new geographies with a lowered capital intensity while providing low latency services with full control over data residency to customers around the world. You see, with these latest developments, we are continuing to deliver in line with our strategic plan to offer innovative offerings to our customers globally. Let me now turn to slide six for a deep dive on each of our business segments where we will concentrate the presentation on life-or-life figures. Firstly, on the private cloud segments, which includes bar metal cloud and hosted private cloud. we have delivered 164.5 million euros in revenue in Q1 FY25, which represents 62% of the group's revenue. We delivered a double-digit life-for-life growth at 10.2% compared to last year, fueled mainly by strong demand in the United States. As highlighted on the right-hand side of this slide in barbed metal clouds, The customer acquisition trend remains good, thanks to the ramp-up of a new range of servers launched in Q1 FY 2025, and also a successful digital Black Friday campaign. Geographically, we're seeing different dynamics according to the region. In the United States, bar metal cloud growth is primarily driven by continued high demand from technology companies. and a high upsell performance, which is driving ARPAC, the improvement of the ARPAC, the average revenue per active customer. In Europe, we kept seeing infrastructure optimization from our existing customers leading to slower ARPAC growth than anticipated. And given the cautious economic environment in Europe, we don't anticipate a change to this trend in the rest of the year. Our hosted private cloud business continues to see double-digit growth thanks to ARPAC increases benefiting from price effects related to the new pricing for VMware licenses introduced by Broadcom at the start of May 2024. Plus, the growth in hosted private cloud is also due to the strong demand for secure and sovereign offerings in Europe, supported by the wrap-up of a large healthcare contract won in Germany in FY2024. Moving now to the next slide about public cloud. In Q1 FY2045, the public cloud segment reached 50.3 million euros in revenue, or 19% of the group's revenue, and grew by plus 15.8% like-for-like, fueled by an increase in RPAC, As we said in our last publication, we have been focusing on boosting cross-sell opportunities among public cloud products for our newly acquired customers and also on improving the user experience for historical customers to fuel upsell. And our strategy is paying off with this increase in RPAC. As highlighted on the right hand of the slide, artificial intelligence AI is also fueling public cloud growth with our NVIDIA GPUs and our AI solutions. As said previously, thanks to our extensive range of artificial intelligence offerings, we are able to respond to an ever increasing number of customer use cases in the inference market. This increase in RPAC is also supported by our enhanced public cloud portfolio, We highlight some of these on the slides as, for example, our new Manage Ranchers solution for managing and organizing containers in a multi-cloud environment. Also, our key management service, our KMS, enabling cybersecurity. Also, our object storage in the Paris 3AZ region, allowing high resilience and storage. Finally, the successful savings plan offers motivating customers to commit to longer-term engagements, also contributed to the increase in RPAC. Moving to the web cloud segment on slide 8, peers see that the web cloud segment reached 48.8% million euros in revenue, or 19% of the group's revenue, and grew plus 4.4%, like for like. If we exclude our legacy sub-segment, telephony and connectivity, growth reached plus 7.4%. This good momentum for WebCloud this quarter is supported by strong domain sub-segment performance. And we are concentrated here on making our products easier for our customers to manage, which also benefits us through better retention. So the growth here has been driven by the geographical rollout of multi-year commitments and an improved user experience through automatic renewals. That concludes our Q1 FY25 segment performance, and I now hand over to Stephanie for a financial and geographical overview.

Thank you Benjamin, and hello everyone. I am Stephanie Besnius, CFO of OVHcloud. Thanks for being with us, and obviously I start by wishing you a very happy new year. As Benjamin said at the beginning, during this first quarter of FY25, we managed to deliver a solid growth of 10.1% like for like, in line with our target. The performance of private cloud, up 10.2% like for like, in a persistently challenging environment in Europe was solid, particularly given that it was up against the strongest growth pattern of FY24, when private cloud grew almost 15%. The rebound in public cloud continues as well. Growth was 230 bits higher than in Q4, 24. And again, on a year-on-year basis, it was up against the toughest comp of the year, which was 18.9% of Q124. So this is pretty robust. Moving to the next slide to look at the business dynamics by region now. So in France, revenue grew by 8.9%. Public cloud delivered a like-for-like growth of 15.6%. driven by an increase in RPAC after a good customer acquisition in FY24. Private cloud now increased by 9.9%, still impacted by some customers optimizing their workloads. Finally, representing 30% of France business, web cloud and other growth was driven by a strong domain name dynamics. Let's now look at our international sales which accounts for 52% of our revenues. First, in the rest of Europe, growth reached 8.9% life-alike in Q1, thanks notably to Central and Eastern Europe. This was helped by the ramp-up of a large healthcare contract won in Germany in FY24. In the rest of the world now, We matched the strong Q4 growth with Q1 life-for-life growth of 14.2%. In private cloud, we continued to experience a strong momentum in the United States thanks to our development strategy focused on the cloud migration needs of our technology companies. In addition, we witnessed encouraging traction in public cloud following recent rollout of product availability. I will now hand over to Benjamin to talk about our outlook.

Thank you, Stephanie. So let me now talk about our guidance for FY 2025. As 2.1 was solidly in line with our expectations, we reconfirmed our FY 2025 guidance. We expect FY 2025 like-for-like revenue growth between 9% and 11%. We expect on a full-year basis and adjusted EBDA of circa 40%. On CAPEX for fiscal year 2025, we anticipate total CAPEX to be between 30% to 34% of our revenue, with a split between recurring CAPEX expected between 11% to 13%, and growth CAPEX expected between 19% to 21% of our revenue. We expect an unlevered free cash flow above €25 million on a full-year basis, improving compared to FY2024. And before we move to Q&A, I'd like to share with you the results of our shared buyback offers. As you know, we announced last October a €350 million shared buyback offer. The offer was opened until this Monday, January 6th, and we can now share the results. It has been a successful project. We offered to buy back 38.9 million shares and 47.6 million shares were tendered. On average, it means that 81.7% of the shares tendered will be bought back that's much higher than the minimum 53% we indicated at the launch. The share buyback aim was to realign our shareholder base and that's been successful. The Klaba family remains the core shareholder and will hold 81% of the company. Employees and treasury shares will amount to 1.7%. and the free float, including private equity funds, will be at 17%. These figures are still estimations. We will be able to update our shareholding structure once the threshold crossing will be published by our shareholders. And we can now open the floor to your questions.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line Toby or from JP Morgan. The line is open now. Please go ahead.

Yeah, hi morning and happy new year and thanks for the questions. Just on the public cloud growth performance, you cited a few different drivers there, including the momentum of your AI offering and the potential to meet customer needs for inference. Could you give us a sense to how much of the public cloud growth is now being driven by AI and how quickly that specific piece is growing? And then just on the inferencing element of the demand, could you give us some more detail on what the biggest potential inferencing use cases are that you're seeing and how much of a driver do you expect that to be going forward? Thank you.

Okay, thank you for your question. Indeed, as you know, as you said, we are positioned in the inference market rather than the training market where the hyperscalers are, and which is very CapEx-intensive. And thanks to our extensive range of AI offerings, which are both hardware, GPUs, but also software, we're able to respond to an ever-increasing number of customer use cases in the inference markets. And so we sell infra and applications. And in the servers, we sell the GPUs. So we have H100, A100, and 4L40S. And in applications, we enable our customers to deploy and exploit the LLMs. So for the inference usage, we provide this data platform, these AI deploy modules, AI training modules, and AI endpoints also with the example that I just mentioned, like for the software theory. So on your questions of the contribution or the public cloud growth in Q1, it's around 1.5 points of our growth in the public cloud segment. And indeed, these products and solutions, these AI product solutions, they enable indeed the entire public cloud segment to grow. What is important is that there is no AI without cloud. And AI is indeed pulling all our public cloud segments to grow. And it feeds also our Kubernetes, our object storage, our databases services. And to the pure inference uses, all the toolings that I mentioned, we see customers asking for NLP usage, text-to-speech, we see for the translation, we see for video usage, we see this in different segments. It can be in health usage, it can be marketing tech. So there is a real traction on the inference usage.

Brilliant, thank you.

Thank you. We will take the next question from line Daniel Sky from City. The line is up now. Please go ahead.

Hi, good morning. Thank you for taking my question. Just quickly, on the regional demand again, so I understand that US now sees kind of better demand and Europe is remaining constrained. Just going forward now for the year, are you still kind of expecting that Europe will kind of be rather weaker from the first half but then accelerating or do you have now better visibility of how it will shape up throughout the year and my second question was just on given that now in this quarter you mentioned that the savings plan and Black Friday campaigns enabled you to amass more customers do you see some impact on margins regarding those campaigns

Okay, so I'll take the first and Stephanie will take the second. On the rest of the year, we confirm our FY25 guidance, as I mentioned, including our life-for-life growth targets between 9% to 11%. And we built, you know, as we communicated in our FY24 results, we built this guidance by factoring the growth trends, so the strong demand in the U.S., successful hosted private cloud offerings, despite the price increases with Broadcom, and indeed a stabilized environment in Europe, even if not yet improving. So three months after setting the guidance, we did not see any significant change in these growth trends to lead us to to raise it, as Q1 was in line with our estimates. There are still nine months to go.

And with regard to your question on the margin, specifically on the saving plans and the Black Friday, it delivered in line with our expectations. So on that basis, we confirmed our target with regard to the BDA margin, as well as the rest of the guidance. So I remind you, it would be around 40%. And on top of the two impacts that you mentioned, just as a reminder, the levers for the margin improvement for 2025 will be also on the COGS and the G&A optimization as a percentage of revenue. It will keep decreasing. We have and we remain very strict on the cost control. And also, we expect to benefit from an impact on the electricity costs. You know that we have a hedging strategy, so we will see the benefit of the price decrease in our 25 margin.

Okay, great. Thank you very much.

Thank you. As a reminder, 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 Derek Marken from Bernstein. The line is open now. Please go ahead.

Good morning, Benjamin and Stephanie. Happy New Year to you. Four questions on my side. The first one, can you give us more color about your performance, business performance in December 2021? especially in France given all the turbulence we are seeing from a political aspect or even economic aspect. That's my first question. Second question, I'm trying to understand the impact or to size the impact of long-term engagement that you mentioned in your press release. Does it mean that you'll recognize part of the contract approach in terms of revenues? That's my second question. My third question, can you share with us any KPIs or metrics that will help us to understand the success of your local zone offerings? Because today we see the ramp up in terms of new data center, but we don't have any revenue figure or number of customers or workload or things like that. Anything here that you can share with us would be helpful. And the last one on AI, when do you believe that the full product portfolio of your AI offerings will be in general availability? Because when I look to the current offering around data platform or even IE endpoint, it's not yet in general availability. It's beta or alpha phases. So I was wondering... if this 1.5 percentage point incremental growth could become much more when all the new products will be in general availability and when will they be in general availability? Thank you.

Okay, so I'll take the first and then Stephanie will take the second. So you asked for color in December. You know, indeed, we see December in line with the Q1 trends. So it's according to our expectations. And this is why we could reconfirm and we can reconfirm our guidance for FY25. The performance in the U.S. remains good. The public cloud performance remains good. So that's why we can reconfirm FY25 guidance. maybe Stephanie on the long-term engagement.

Yes, thank you, Derek. So on the long-term, the saving plans, if I'm not wrong, you are referring to, we are invoicing on a monthly basis, so we recognize the revenue over the period. You don't have any specific one-off linked to the fact that we have a new contract over a long-term period.

Then on your third question, on the local zones. We have launched the local zones a year ago. It's a progressive rollout. Now we have 17 up and running. The way we develop the local zones is that we capture the feedbacks on each geography. It's a new market. This is for us... lever to grow public cloud offerings with low latency, with data residency, and we are really interacting with our customers to tune the right offerings for the right use cases in each of these logo zones. So it's early to share dynamics or figures on the logo zones. And on your question on when is the full AI product in GA, we have today an extensive range of products. We see these inference use cases growing, and we'll continue to expand that. On each quarter, as for the rest of our products and our public cloud products, we enhanced the suit of solution. We continue to resupply the GPU, so all the hardware that's below, on existing references, but also on the new references. So this is an evolving extension of our product portfolio for artificial intelligence. Thank you.

Thank you. Thank you for your question.

Thank you. We will take the next question from line Hugo Paternosto from Kepler. The line is open now. Please go ahead.

Hello everybody, good morning, thank you for the presentation and also wishing you a happy new year. My first question will be a follow-up on the European visibility that you may have understood that so far it has been delivering in line with your estimate and just wonder when you build your guidance for the current financial year, What were your hypotheses on the demand in Europe and what are your expectations for the next quarter? The second question is on the public cloud. Could you break down the drivers for the ARPAC increase? I believe that you have product enhancements, customer offer and you already mentioned AI product delivering 1.5 percentage points. What are the other drivers? and as a follow-up on that is how we should view the Q2 performance compared to the Q1 given that the comparative basis will get easier and easier along the year. So how should we view this?

Okay, thanks for your question. I'll take the first and Stephanie will take the second and third question. So your question is on Europe. Well, you know, we have As many, we have limited visibility on the macroeconomic conditions as IT companies in Europe currently remain cautious. For instance, according to a recent Morgan Stanley CIO survey, the IT budget growth expectations into 2025 is plus 3.5%, and this is still below the pre-COVID average, which was plus 4%. Also, we see that digital services companies in Europe only see a recovery in IT spending from H2 2025, and this timing of the recovery has been postponed several times. So we factored in our FY25 and also in our long-term guidance this cautious environment in Europe. Thus, long-term, we are fully confident in the cloud market and there's a lot of opportunities ahead of us with AI, with machine learning, with quantum ahead of us.

So on your first question with regard to the public cloud momentum, so you see that we keep on accelerating. We have now a like-for-like growth of 15.8%, so about 15%, and we started from below 13% in Q2 2014. For this quarter, it's mostly fueled by the increase in the RPAC. What we are doing, we are focusing on boosting the cross-sell opportunities in public cloud. So we have our customers starting, for example, with the compute. And what we see is that our customers are adding other services, additional services, quickly and quicker than what we saw in the previous quarters. So we benefit for the effort that we did on the acquisition of new customers in 24 and we're able to grow the business with these customers more quickly. And this is driven by sustainable growth trends, the AI-driven demand we commented before with Benjamin. We have also keep on enriching our offer of public cloud and we have also launched this saving plan which encourages customers to commit to the long-term engagement. So all in all, the growth is very much driven also by the cross-sell and up-sell on our customers. With regard to your third question on the seasonality, I mean, you're right. First, we deliver in line like you saw in Q1 and in line with what we expected in our guidance. We will indeed have more favorable comparable basis in Q2 and Q3. However, on the other side, we had a strong Q4 in FY24, particularly because we started to benefit from Broadcom price increases. So all in all, I end up with reminding on the lack of visibility that we have on Europe, so it's a bit too soon to be very precise. Anyway, we confirm the guidance for the full year.

Okay, got it. And if I may, just a follow-up, it's regarding the guidance that has been maintained, and I would say it's a broader question now. In the last publication, the previous one, you mentioned to introduce new initiatives to pursue the Journey B on 2025, and I'd just like to have an update on it, whether it should be new guidance, new figures, fine-tuning the guidance, or something more precise. or whether it refers more to product offer and the global footprint expansion you already commented. Whether it's on the guidance, do you prefer to wait to have better visibility on the European momentum? Any color on that might be useful.

Okay, so basically the initiatives indeed that we talked about, we mentioned that the levers are on different aspects. Some indeed Efficiency. Some are more on the optimization of our industrial operations. Some are more on working on our COGS and our GNA and some are also on the working capital. So we are reviewing indeed our costs, applying new strategies to generate revenues and to take the right decisions on the way we allocate capital and the way we prioritize our various revenue streams. So we expect, indeed, some of the crystallization of these strategies to take still a few months. And hence, we'll look and come back to you at precising these initiatives in the coming months.

Okay, got it. Thank you very much.

You're welcome.

Thank you. We will take the next question from line George from Morgan Stanley. The line is open now. Please go ahead.

Hi guys and happy new year from my side as well. Just a question on the capital structure and those aspects post the buyback to remind ourselves. Can you remind me how you're thinking about kind of leverage, leverage reduction through maybe the next one, two, three years and what your kind of leverage range targets would be and actually when we think about 2025 with all of the the debt facilities may be a bit closer lined up. What sort of debt interest costs should we be thinking about for the year on that kind of percentage basis? Thank you. Okay, Stephanie will take this question.

Yes, so on the leverage, George, so we are working on the refinancing. What we have communicated is that on a pro forma basis, as of the end of 2024. We expect financial leverage as per our documentation below three times, at 2.8 times. We remain aligned with our internal financial policy where we want to remain cautious in terms of leverage and to be below three times. The focus is indeed to progressively reduce this leverage. You remember that we are committed to deliver free cash flow in 26, so that will also contribute on top of the increase of the EBDA to the deleverage. Clearly, that's the focus of the company.

Okay, thank you.

Thank you. We will take the next question from Lang Yan, from Gilbert's Viewpoint. The line is open now. Please go ahead.

Yes, hi, good morning. I wish you a happy new year too. Two questions, please. The first one is on the VMware price impact. Is it around 3% this quarter on private cloud? And the second one, around PaaS, could you give us the current error? Thank you.

Yes, so the VMware price increase contribution, you say, is around 3 million. That's as in Q4. And on your second question, so the PaaS contribution for Q1 is 26 million euros for IR for PaaS.

Thank you very much.

You're welcome.

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

So, thank you so much for attending our Q1 FY25 call. And as a wrap-up, during this strong quarter, we reached €264 million revenue. We started the year on the right foot, with a solid like-for-like growth of 10.1% compared to last year. This solid double-digit growth was driven, as you saw, by robust performance across private clouds, fueled by the strong demand in the US, and public clouds fueled by an increase of RPAC, and a good momentum for web clouds, supported by the dynamics in domain names. Plus, globally, we had a high like-for-like net revenue retention rate at 109%, demonstrating strong client stickiness. During Q1, we also continued our international expansion, as illustrated by our strong growth in the rest of the world. Operationally, the availability of 17 local zones as of end of November 2024 in major cities around the world. and the announcement of the opening of a new 3AZ region in Milan by the end of 2025. In parallel, we kept on extending the range of our artificial intelligence solutions and products to meet the growing customer needs in terms of insurance. So with this good start of the year, we confirmed our FY25 targets, a growth between 9% to 10%, an adjusted BDA margin of circa 40%, capex between 30% to 34% of our revenue, and an unlevered pre-cash flow above 25 million, improving compared to the one in FY24. Yeah, a growth between 9% to 11%. Sorry, yeah. We confirmed our FY25 targets, a growth between 9% to 11% for revenue growth. So again, thank you so much for attending our call and have a great day. Bye.

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