Ovh Groupe

Ladies and gentlemen, welcome to OVHcloud H1 full year 2026 results. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud and Stephanie Benya, CFO. I now hand over to OVH management to begin today's conference. Thank you.

Good morning everybody. I'm Octave Klaba, Chairman and CEO of OVHcloud. Thanks to being with us this morning. Let me start with the key highlights of H1-26. As we announced it, we generated 555 million revenue and EBITDA 227. That means that we generated around a 5.5 like-for-like growth this H1. Our adjusted EBITDA is 40.9%. and that revenue rate, it's more than 100%. And we had this other, another red, if we cash flow 42.3 million. As the key initiative, so as you know, I started, as the CEO six months ago, I make my, a lot of interviews internally, and we already started some strategic initiative in OVH to start this five-year strategic plan that we started with 26 to 30. And inside of that, we announced that we will create, that we actually started to create a vertical defense market. The goal is really to go after the customers and the needs that we had a lot of feedback the last quarter and for this very critical argument that some customers they ask us. Another strategic initiative is really focusing on the sales side on the starters and scalers on the acquisition. we can go deeper inside if you have any question about that. And on the corporate, more focusing on the regular fast closing mid-size deals. And again, I have some highlights if you have the questions about that. And we announced also that we create our AI lab. And it started, it was initiated with this acquisition of Dragon LLM. And it's really to address the growing market that we feel that our customers, they want us to be part, that is agentic AI. And on operational highlights, so we have the few things that we wanted to share with you. So we had this EV day that is quite highest record from the IPO. five years ago, so we still continue to improve the EBITDA, and it's going up, and the goal is really to not be satisfied with the level that we have today. And there was another key operational highlight. It's about the front-loaded CAPEX to secure our free cash flow in this year and the next year. So I think you will have some questions about that. So we'll go deeper with your questions. So next page, please. So let's go deeper in the different range of products. So first one is private cloud. So we generated 169 million. That represents about 60.5% of our group revenue. And the growth is about 2.9%. from the like-for-like graph on the Q2. And on the H1, it's 3.4%. As the highlights on the barometer, so we know we started this initiative in the first H1, first quarter and the second quarter. As a result, we have this 12% more customers acquisition. If we compare H125 and H126, it works better on the acquisition, but we need still to continue and to increase our aggressivity on the market and to win more customers. So what we put in place works, but it's not enough. I want more. And this is where we want to go in the H2, in the Q3 and Q4 after more customers on the starters. On the scalars, we have this continued growth and it works nicely what we have internally. There's still some improvement, but what we have, I'm happy what we have. And on the corporate, yes, we had some churn on the some two customers on the corporate. that didn't impact on the fundamentals on the growth. So we still have work on that, but just we lost two corporate customers for that. Yes, we announced that we signed a strategic deal, strategic contract with Aleximi, that is a blockchain platform. And we have a lot of success in this blockchain platform that helped us to really understand how to – grow faster in the scaler go-to market. On the hosted private cloud, on the starters and scalers, we still see that there was few optimization of our customers. We are working on this new product and I think the next weeks we will see some announcement that we'll make with Broadcom. Another corporate is we really ramp up of this mission critical deals that it's a really interesting market that we didn't have yesterday that based on the 380. Maybe we will have a chance to talk about that. Next page, please. On the public cloud, on the public cloud, we generated the Q2 60 million. That's one 19 in H1. there was 26% of Q2 growth and 14.5% of the growth in Q2. That means on the H1, it's 15.1% of growth. So we have a solid new customer acquisition. As I said, we changed the things, but still we can make it better. On the scalars, strong upside of the current customers and we see the opportunities of the additional products on this 3AZ approach that we have that customers really like. And we see some migrations from the current data centers to this new model of the 3AZ. On the corporates, we have more traction on the corporate. Still those small, those two free products that is still missed and it will be delivered in the next quarter. that will help this industry to go after just corporate market, on the corporate market. So we also been working a lot and we will secure more our public cloud on this end-to-end encryption, on the confidential computing, on all the security that we can deliver on this public cloud in the product. And this is, additional value that some customers they are asking us. On the entry level of the range of the product, the VPS and the SAS, we have a good proof that what we've done, it works well because we had more than 100% of additional customers that we had in H126 versus H125. That means that we double acquisition of number of customers. We started to see that in the revenue, and we'll see how it will evolve in the next quarters. But this is kind of proof that this strategy of the very aggressive prices, more volume, more customers, and then having this machine to upsell, and helping customers to use all our products, it works. Now we need to scale that and to go after more geographies, more customers, and to be more aggressive. And this is what you will see in the next part of it. Next page, please. On the web cloud, we generated 50 million. That means on the H1, 100. Growth of the Q2, 70.5%. and on the 70.5% of our group revenue. And then our graph is 2.4 on the Q2 and 2.5 on the H1. There was still, yeah, I would just go after the topics and then I would just add additional comments on that. So on the start of, we adjust the, didn't really started repressing and to generate new demands. This is exactly what we are doing right now. And it will be delivered in the next two months, one or two months, it's really ongoing. So we want to be really seen and very competitive on the starters market for the web cloud. We have also the opportunity to go after the more higher market of the customers. They are more pro business that they trust us and they order us more products. So we want to go after this two segmentations of the products and also working on the web AI. And you will see the next quarter, next month, this transformation of the web cloud to the web AI. that will operate over the next month, months, quarters to go off of this totally new market where AI helps our customers to build a faster delivering website, help them to operate them, to having the marketing, to having the additional products, additional services. And this is what we are doing right now on the web. You don't see really the results of that in the numbers today because this is what we started last quarter, and there's still a lot of things to do, but you will see by the end of this fiscal year, I hope the first result of this strategy. Next slide, please. If we see on the split by countries, France, we have in Q2 a growth of the 4.5%. That means on the H1, 5%. On the Europe, excuse me, France, we have the 2.9 and then on the H1, 2.5. I have to say that it was a really complex quarter. There was a lot of, there was something that is really new, but we have seen that last two, three years and it seems like on this Q2 period of time, we will see in the next years this customer optimization because it is end of the calendar year for them and the beginning of the next year. And I think this is what we have seen, we started to see for the last year, this year, and two years ago, that we have this kind of the new pattern of the behavior of the customers in December, January, February, where you see optimization of the cost and to having this discussion probably internally on the budget and then starting as lower as they can the new year and then grow over the year until the December. So it's something that it's not confirmed yet. We will still work on the numbers and to really understand, but this is also what we see on this Q2 result that we knew that it's a tough period. Now we started to know and started to understand why it's a tough period. Still work to do to really understand the behavior of the customers and to confirm that we will have in the future Q2 pattern on our revenue. So I don't know yet, but this is what we started to see. And on the rest of the world, we had this Q2 8.7% and the H1 9.5% of still continue to grow on the bar metal and on this public cloud product. So I will let Stephanie to go in the financial results and I will have a talk with you on the outlook.

Thank you very much, Octave. Hello, everyone. This is Stephanie speaking. Thank you for being with us this morning. So let's begin this financial section with our key financial figures for H1. So we delivered a profitable growth with a record adjusted EBITDA margin since our IPO and solid and level-free cash flow. despite having significantly front-loaded our CAPEX ahead of H2. We've come to that point. So we recorded an organic revenue growth of 5.5% and adjusted ABDA margin of 40.9%. So we are up 90 basis points compared with H125, thanks to our operational efficiency. And CAPEX was 42.9% of our revenue, up 6.9%. compared with last year H125, of which 11% were front-loaded for H2. We have decided to make proactive investments to secure a supply chain and mitigate the impact of skyrocketing component costs, which began to materialize in RQ2. Despite this anticipation of our capex, you see that we generated a solid and leverage free cash flow of 32.3 million euros on this H1. So going to the next slide, regarding our top line, as Octave said at the beginning, we delivered a life on life growth of 5.5% during this H1. So this was driven by first a private cloud performance Up 3.4%, like for like, impacted by a 1.2 point headwind from the turn of the two corporate clients that we mentioned during our Q1 results. And we have also a softer hosted private cloud dynamics following Broadcom price increases. Second, public cloud continues to lead our growth trajectory, up 15.1%, like for like. confirming its position as our primary growth engine. And last, WebCloud up 2.4% like for like. So now we take a closer look at our P&L on the next slide. So P&L, as you can see, we achieved another strong step up in profitability with a largest CDBDA of 227 million in H1, and it represents a margin of 14%. 40.9% our highest margin since our IPO. So this strong 90 basis points improvement in our EBITDA margin is coming from a positive mixed effect on our direct cost, reduced electricity cost as a percentage of revenue compared to H1 at less than 5% of our revenue. And I can tell you that we are edged in the current context also for the next 18 months. And we have also a strong operating leverage on our fixed cost base. We delivered an EBIT of 35.4 million, representing a margin of 6.4%. On a like-for-like basis, if we exclude the one-off gain from the disposal of a legacy data center in Paris last year, our EBIT margin remained broadly stable. After including a financial result of minus 28.7 million and a tax expense of 0.7 million, we recorded a net profit of 5.9 million for H1, slightly lower than last year. Now, let's look at the increase in profitability, how it translated into cash generation. So our strong profitability enable us to generate a solid and level free cash flow of 32.3 million in H1-26. So our capex, if we exclude M&A amounted to 238 million, 38.5 million exactly in H1 and it represents 43% of our revenue. Our growth capex accounted for 30% of revenue And again, 11 points of our capex were deliberately front-loaded ahead of H2 to secure component availability and contain hyperinflation. Recurring capex represented 13% of revenue. So our level of capex is compensated by our profitability and change in operating working capital requirements, which was higher than usual and amounted to 54.7 million in H1. And it includes saving effect due to late orders in February. So all in all, after leases and financial charges, our levered free cash flow stood at minus 14.2 million. So now let me give you a detailed view of our capex on the next slide. So our CAPEX again, excluding M&A, represented approximately 43% of revenue in H1. So let me explain the key moving parts. First of the hardware CAPEX, it represented 33% of revenue, 187 million. So it's a step up compared with 27 in H1. And as I already mentioned, this was a deliberate decision in face of a global supply crisis on memory and disk components to first secure our component availability and contain cost hyperinflation. Second, our infrastructure and network capex came down to 2% of revenue, 11 million with some phasing effect from H1 to H2. And product and software capex remain stable around 37 million, 7% of our revenue reflecting our continued investment in expanding the product portfolio. notably with new public cloud services and mission-critical offerings while we control our costs. Our capex remains marginal, around 1% of our revenue. So now, given the exceptional supply environment, we have adjusted our full-year capex guidance, which I will walk you through on the next slide. So as I just mentioned, the global component crisis, particularly on memory and disk, has led us to adjust our full year 26 CAPEX guidance. So I will take you through the bridge on this slide. You remember our initial guidance was 30 to 32% of CAPEX as a percentage of our revenue. The exceptional hyperinflation on memory and disk components has approximately three percentage points. However, we decided to front load some of those CAPEX And by doing so, we realize the saving of approximately 10 million in our H1. So we are already partially offsetting the inflation impact through proactive timing. And we are securing our supply. So this brings our new FY capex paradigm to 33 to 35% of revenue. This adjustment is cyclical and not structural. It reflects the current component inflation environment. We have already passed through pricing quizzes to part of our customers effective April 1st, and we continue to monitor the situation closely to calibrate further adjustments as needed. On top of this, we are going to build a dedicated stock of approximately 50 million in-memory and disk components. Those are standard components and there are no obsolescence risks. and it will be strictly earmarked for 25 consumption. This exceptional envelope allows us to secure availability, this is very important, and we lock in pricing ahead of further anticipated cost increases. Here again, by purchases in H2 rather than at the beginning of 27, we estimate additional savings of approximately 15 million, one five. So in total, 10 million in H1, 15 million coming up in H2. Our front-loading strategy generates 25 million savings that would have been lost had we waited. To finance this 50 million of loss in stock for 27, we will use a dedicated exceptional financing facility. So our underlying business generates sufficient cash to cover all our FY26 investments. and delivering a positive levered free cash flow in FY26 that we confirmed today. So including exceptional and dedicated financing for those lock in stock for FY27 capex. Let me now turn to our balance sheet and financial structure. That will be my last slide. So our financial structure remain robust and well positioned for the future. Our net debt stood at 1,125,000,000 at the end of February 26, and it's broadly stable compared to August 25. Our leverage ratio has continued to decrease 2.6 times our EBITDA in line with our debt policy. The all-in cost of debt remains unchanged year on year at 4.4%, demonstrating the quality of our hedging strategy, available liquidity, stands at 236 million, comprising 36 million in cash, and our Andrew 200 million multi-purpose credit facilities. As you can see on the right hand side of the slide, we have no major debt repayment before FY2030, giving us significant financial flexibility. Our funding sources are well diversified, We have our 500 million inaugural bond at a fixed rate of 4.75, maturing in FY31, rated WB- by S&P and BA3 by Moody's. Our 450 million EU taxonomy-aligned green loan, maturing in FY2030. So it's the first for a European cloud player. our 200 million EIB credit facility, and finally, our Android multi-purpose facility of 200 million. And this credit facility was also converted into a sustainability-linked loan, further reinforcing our commitment to responsible financing. So in summary, we have a strong, well-hedged balance sheet with no near-term refinancing needs, supporting our path to positive free cash flow. And now I will hand over to Octave to discuss our outlook.

Thank you, Stephanie. So for the FY26 activity, our guidelines don't change, doesn't change. We anticipate like for like revenue growth five to seven, adjusted EBITDA margin more than FY25, capex, adjusted capex if we consider really fyi 26 activity it's really 32 35 that is a little bit more but another free cash flow free cash flow will be positive for this 26 activity so now we are political for your questions you have if you have any

If you wish to ask a question, please dial pound key 5 on your telephone keypad or press the blue hand icon. The next question comes from Ines Mao from BNP Paribas. Please go ahead.

Hi, Octave. Hi, Stephanie. Thank you for the presentation. I just have two questions. The first one is on your CapEx breakdown. So I look at the CapEx breakdown by components. I see that hardware was up as percentage of revenue, which was voluntarily, but if it was only hardware, why was also recurring CapEx higher in H1 year over year? And my second question is, can you comment further on potential pass-through price increases to moderate the impact of this price up cycle on CapEx? Is it still on the menu or is, yeah, can you give us more call on this? Thank you.

Yes, thank you Ines. So we have a slight increase of our recurring CapEx to 13% of our revenue. This incorporates also the impact of inflation that started to kick in particularly in our Q2 numbers. And as for the price increase, we have already started to pass through the impact of this inflation. We launched the first initiative around increasing our prices April 1st. We are doing it tactically. We don't price all our customer bases. We focus particularly on the new configurations, on new customers, and also on products where we have less price elasticity. And obviously, I mean, we remain very careful, like we mentioned. and we will continue to monitor the evolution of the prices to be ready to react and to engage into potentially new price increases if needed.

Okay. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad or use the blue icon on the webcast. The next question comes from Derek Markin from Bernstein. Please go ahead.

Yes, good morning. Thank you for taking my question. So the first one is on price increase. Can you quantify the impact that it will have in fiscal year 2026 and what was factored in the unchanged guidance of plus 5%, plus 7% And if we look to 2027, what would be the impact of this price increase? That's my first question. The second question is about the telephony and connectivity. Do you see the trough coming in the next quarters? Where do you see the trough for this business? Because it's still waiting on the performance of web cloud in H1. And my first question is on AI. Could you quantify, please, the impact of AI on the big cloud growth? Thank you.

Thank you, Derek, for your question. So first on the price increase, I mean, we've just launched them a few days ago. Like I said, I mean, we've done tactical price increase, and this will have a gradual effect. We have some of our customers that are committing. So bear in mind that this will flow through over several quarters. We will also monitor the impact of this price increase. So far, it's too soon to tell you a clear impact. In any case, on that basis, we have decided not to change our guidance, and we confirmed the 5% to 7% range for this year. And again, for the same reason, I mean, we monitor the impact in our Q3. We have a better view probably at the end of Q3 of this impact, and we will work also on the guidance for 2017.

in the coming months and we'll get back to you with indications and guidance for 27 in the end of october during our full year communication on the vip and access thanks for this question so uh no we we don't see any the change for the moment um we started to We started to work on the web pages, on the offers, just last quarter, and it's still a work we are working on. I hope that next quarter it will be done and we will start seeing the difference in this decrease of the revenue because it's impacting the perception on our growth on the web cloud, so it's sad to have this decrease of the revenue while we doing well on the domain name or the emails, et cetera. So I understand your question. Still, the work will be delivered. I hope it will be May 1st or June 1st on the new range of the web cloud and the new range of the VOIP. and when we will see also what to do exactly. We have different options for the access for the connectivity.

And your last question, Derrick, was on the AI contribution. You remember, I mean, we always mention, and that was true so far, that we remain cautious with regard AI, considering the level of return of investment that we've seen so far. So the contribution remained quite small because we invested tactically to answer also some requests from our customers. It's around one point, like in the previous quarter. Now, you may have seen the announcement last week. We've decided to launch our AI labs. We've made a small acquisition for Dragon LLM. And last point is that in the context of this inflation on the standard components, we do see a clear improvement on the GPU return compared to CPU. And now it looks like we could achieve similar return on GPUs and on some of our CPUs. So basically what I'm saying is that we are seeing an evolution on the market and on the economics, and we are ready to invest in the coming quarter more significantly in AI.

The next question comes from Chi-Heng Zhang from Lazard. Please go ahead.

Yeah, hello. Thanks for taking my question. It's regarding your levered free cash flow guidance. It's guided to be positive for financial year 2026. Could you please elaborate more on this front? Is the $50 million locked in stock for 2027 included in this guidance? And how should we think about the working capital for this year? Thank you.

Thank you for your question. So to be very transparent on the levered free cash flow, like we explained, we are going to acquire components ahead of 27 that will be clearly isolated and stocked for 27 for 50 million. That will help us secure our supply chain. And also by doing so, it's prudent management because we will generate what we estimate around 50 million of cost savings. So we are going to invest 50 million more, exceptional, and in front of it, we are going to set up an exceptional short-term financing of 50 million. So those two elements will be included in our level 3 cash flow and neutralized. So basically on the, I would say, adjusted for 26 basis, our level is going to be positive in 26. We don't guide for any specific numbers. It will be, in any case, above zero. And working capital, I mean, we don't guide also specifically. You see that we have some positive impact for this semester because we have some payments that were out of the period. It will also depend on the timing of the reception of the capex, which will be too soon to comment on our working capital for the full year.

Thank you for your questions. I hand the conference back to the OVH management for any closing comments.

Perfect. Thank you very much for your question. Just to have the key takeaways. Highlight, 5.5 growth, like for life. Adjusted every day that it's a record from IPO. and the front-loaded CapEx for FY, so H2 26, and a lot in the stock for CapEx, FY 27. Last, strategic initiatives, we wanted to highlight three of them. Defense market, we go after this, going after the acquisition of the small customers, the digital customers, having more pressure of that, and going after this more regular mid-size deals, and also launching our AI labs with the acquisition of Dragon LLM. And FY26 guidelines, 5% to 7% of growth, like for like, adjusted EBITDA more than FY25, adjusted capex 33%, 35%. of the revenue and positive leverage free cash flow. I want to thank you for all your questions at the time and having a very good day.