IONOS Group SE (IOS) Earnings Call Transcript & Summary

Hello, and good morning, everybody. I would like to welcome you to the analyst and investor call of IONOS on the results of fiscal year 2022. This is our first reporting after our IPO. Thank you for joining. My name is Stefan [Indiscernible], and I will be responsible for Investor Relations at IONOS. So I'm very much looking forward to being your contact for any IONOS Investor Relations topics from now on. Let's have a look for our -- on our agenda for today's call. Achim Weiss, CEO of IONOS will give you an update on the business and the development and achievements in 2022. Britta Schmidt, CFO of IONOS, will then walk you through the financial details and main KPIs for fiscal year '22. We will then talk about the milestones for next year and give a detailed outlook for the year 2023. Achim and Britta will then be happy to answer any open questions after the presentation. I would now like to hand over to Achim. The floor is yours.

Well, thank you very much, Stefan. Good morning, ladies and gentlemen, and a warm welcome to our conference call, I'm Achim Weiss, CEO of IONOS Group. And I'm pleased to be speaking with you today about our financials for 2022. As you most likely know, almost 2 months ago, we successfully listed on our Frankfurt Stock Exchange, which was a significant achievement for us, and we understand being publicly listed comes with even greater responsibilities. Timing is everything. And despite all the challenges, we are proud to have completed the IPO where we managed to successfully place 21 million shares, raising a total volume of around EUR 390 million. With the help of our entire team, we achieved a significant milestone in our company's history. Some of you already be familiar with IONOS, while others may be hearing about us for the first time today. So I'd like to use this opportunity to give you a brief overview of our business model and strategy. IONOS is a clear #1 European SMB digitalization partner and trusted cloud enabler. Our group generated a total revenue of EUR 1.3 billion last year and is mainly built on four strong pillars. Starting at the bottom of the slide, the first and largest pillar is our web presence and productivity business. Which contributed EUR 870 million in revenue last year. It's a very stable and steadily growing business with very high margins and high cash conversion. We are the clear #1 player in Europe with the native footprint in the largest European economies where we are the undisputed market leader in Germany, in Austria and Spain, #1 in the U.K., in France, in Poland, we are the strong and fast-growing #2. Additionally, we have a very stable business North America, and very sizable business in North America with more than EUR 100 million revenue. In the center of the page, you can see our second pillar, which is our fast-growing aftermarket business with our [indiscernible] brand, which contributed another EUR 215 million in revenues with 22 million domains listed for sale and another 10 million domains Park, we are by far the market leader in this business across Europe. Moreover, IONOS is increasingly becoming a trusted Cloud Partner for small and medium businesses. Although this is our youngest business area, it is already self-sustaining, which means all initial startup investments and running costs are covered, and the business will start to contribute to our EBITDA going forward. Building on the investments we have already made in our cloud solutions business, we achieved a growth of 20%. And this business already EUR 130 million to the group's revenue. So last but not least, on the left side, you can see IONOS has a very strong brand that really helps us across all sales channels as well as in retention. Whenever customer is deciding an online product to build or grow his business. He will remember IONOS will have a look at our more than 50 excellent solutions to support him. In total, we are present and completely localized in 18 markets across Europe and North America, but our products and service, of course, are available wide. Looking across our competitive landscape, we can state that in Europe, our market share is more than twice that of our closest competitor, which is [indiscernible] in the web presence and productivity area. This proves our leading market position in the highly scalable presence productivity business, again, around EUR 870 million in revenues, which is roughly 2/3 of the group's revenue. So now we have something typical this year. So next slide, please. Let's have a look at some more KPIs starting on top of the middle column. The EUR 1.3 billion revenue last year represents a very healthy 17% year-over-year growth and was generated by now 6 million customers. So [indiscernible] will have a look into the drivers of this growth. From the EUR 1.3 billion revenue, we have generated EUR 346 million adjusted EBITDA, which is a very nice 90% cash conversion. Roughly 80% of our revenue is subscription-based, providing a very reliable and stable foundation. The other 20% is transaction-based, originating mainly now the aftermarket business as, for example, trading a used domain is typically a transaction. Our NPS scores is about 34 on average across the group. But depending on the brand positioning, it can be as high as 70%, which is really great for the industry. Please keep in mind that we report the overall NPS, including online NPS, some large competitors only report post contact NPS, which is usually high, but does not reflect reality in overall customer satisfaction. We operate a very sophisticated marketing machinery more than 11x CLTV over CAC. So for every year spend in marketing, we earned EUR 11 over the lifetime of these new customers. There's a typical payback period of only 12 to 18 months for the customer acquisition costs. Provide more detailed presentation on these figures shortly. But it's important to note that our strong financial performance really reflects the benefits of our mostly subscription-based business model. One key growth drivers -- our key growth drivers are net customer growth and increasing average revenue per user or ARPU. Our mission-critical products and our great services and our excellent support from our personal consultants have helped us to develop a very loyal customer base. In fact, we have been able to further improve our already impressive churn rates, which are now as low as 1% per month, really best-in-class. On the left-hand side of the slide, you can see that we have been able to maintain strong customer growth, adding 110,000 customers during 2022. On the right-hand side, you can see that our ARPU increased by 5.2% to now EUR 14 per month. It's also -- also worth noting that this growth momentum has accelerated last year, which is mainly a result of a combined and improved up in cross-selling to our customer base as well as the expansion of cloud solutions business. This again demonstrates the successful execution of our business strategy, underpinning our predictable growth in revenue and profitability. On this slide, I would like to highlight one of our important growth levers, which is the IONOS brand. In a consolidating hosting market, having a strong and well-known brand is key to success in addition to offering the right products and services, of course. And even strong on IONOS [brand] will support us in many ways, for sure with more organic customer inflow, but it will also lower our customer acquisition costs and all the performance marketing channels. And it even helps in retention, just to name the most obvious ones with the strong brand awareness, potential customers no longer have to search the Internet for service like ours or if they do, they will be aided by recognizing our brand standing out across all marketing noise and competitors. This is an important strategic goal and will help us to increase our market share. In addition, we are raising the barrier to entry in this market even further. On the left-hand side of the slide, you can see our first commercial with -- on [Indiscernible], which we launched in the U.K. in September 21. It has already delivered remarkable results, not only in brand awareness and search volume, but also in direct customer inflow. Since then, campaigns in Germany, France, Spain and Poland have followed. Here, we can see the success of our brand campaigns in numbers and that our efforts are paying off as expected. Last year, we spent an additional EUR 31 million in brand marketing across the group, but with a clear focus on IONOS brand. Total brand marketing spend was EUR 54 million, in line with what we said during the Capital Markets Day. Investing in any brand is a long term strategy that requires some patience and persistence. It is, therefore, very encouraging that we are already seeing great results and increase the brand awareness today. For example, looking at the campaign with -- [Indiscernible] in the U.K., you can see that our aided brand awareness already jumped from 19 to 30 in less than 1.5 years. Due to high importance of our brand building and the positive results we are observing continue to push the marketing after IONOS brand. This year, we expect to spend EUR 65 million to EUR 70 million. However, brand marketing spend will stay at this year's level, which will just mechanically result in a decrease of marketing spending as a percentage of revenue and therefore will automatically help increase the EBITDA margin going forward. So at this point, I would like to hand over to Britta to walk you through the details of the past year.

Thank you very much, Achim, and welcome as well from my side. Let me start with an overview of the different revenue streams in 2022 on Page 10. Total revenue grew by 17.2%, supporting our growth story with all business segments contributing. Our largest business area, that presence and productivity grew just over 17% year-over-year, supported by the exceptional growth in the aftermarket business, which is adding 9.6 percentage points in 2022. Excluding the aftermarket business, web presence and productivity grew by a very solid 5.7% year-over-year. Our cloud solutions business also saw very encouraging growth year-over-year. It grew by 20%, underpinning its continued strong double-digit growth we have guided for. It is still the smallest business in our group with a revenue contribution of around EUR 130 million, but it's growing fast. And we have reinvested most of the EBITDA contribution from Cloud Solutions to benefit even more from this strong market opportunity in the future. It is worth noting that our growth in full year 2022 was impacted to some extent by positive exchange rate effect. In particular, the generally stronger U.S. dollar against the euro had a positive of 2.9 percentage points on total revenue growth. Excluding the aftermarket business, where a large proportion of the business is settled in foreign currency. This effect is just 1.5 percentage points. In total, let me say that we have achieved our targets communicated at the IPO, which was to get to a 15% to 80% growth in 2022. Let us have a look at the development of our profitability on page 11. It is important to mention that our main focus is and remains on profitable growth. And as our business benefits from economies of scale want to take advantage of the opportunities we have in our attractive markets with typically quite fragmented and less strong players, as Achim has already mentioned. Consequently, in 2022, we invested EUR 31 million in future growth. This was mainly an investment into our brand, and we have shown you the positive results we are already seeing. This investment explains the slightly lower EBITDA level compared to full year 2021. EBITDA and as well EBITDA margin was, in addition, negatively impacted by EUR 15.7 million from higher energy costs. Adjusted for these two effects, higher growth investments and higher energy costs. IONOS comparable EBITDA margin would have been 13.4% in full year 2022 -- it's 30% not 13%. This is including the structural effect resulting from the strong revenue contribution of the aftermarket business, where we typically charge a commission of 15% to 20% only. So below the margin levels we see in the rest of the business. This is diluting the margin in 2022 compared to 2021, by around 1 to 2 percentage points. Again, let me note that with adjusted EBITDA margin standing at 26.7%, we are confirming what we've guided to during the IPO. On slide 12, you will find the same information on a Q4 basis. What are the key messages on a quarterly basis? Revenue growth in Q4 remains double digit, but we can already see a slowdown to 13% due to lower growth in the aftermarket business as planned. Revenue growth, excluding the aftermarket business was 6.1%, so slightly higher than for the full year, while the aftermarket business grew around 48% in Q4 2022 compared to 88% for the full year 2022. Around 60% of the growth investments I mentioned before, was made in Q4 2022. Consequently, the margin effect was very back-end loaded. Excluding the effects from growth investments and the impact from higher energy costs, the comparable EBITDA margin is 26.9% in Q4. And again, if judging the operational performance, keep in mind the dilutional effect from the strong growth in aftermarket. Let us turn to Page 13. IONOS is an asset-light business, driven by our favorable serve economics, we have low and predictable CapEx requirements. We are benefiting from top line growth, a state-of-the-art technology platform already in place and its related economies of scale. Consequently, in 2022, maintenance CapEx is broadly unchanged year-over-year or actually decreasing as a percentage of revenue, while growth CapEx, which means CapEx to further build up our Cloud Solutions business is up by around EUR 4 million in absolute terms, but also slightly lower as a percentage of revenue and very importantly, linked to future revenue growth. Having this in mind, we expect CapEx for 2023 to come in at around EUR 100 million or around 7% of total revenues. Please let me remind you that, first of all, 2022 is fully in line with what we said before. And going forward, maintenance CapEx will continue to remain roughly on current levels. Growth CapEx is expected to further decrease 4% of total revenues in the midterm. As laid out, increasing energy cost had an impact on the EBITDA and EBITDA margin in 2022. Despite energy costs being just around 3% of total revenue. This is why I want to talk about what we have already done to mitigate risk from energy costs and what we expect for 2023. The graph on Page 14 shows the impact from higher energy cost in 2022, which is largely driven by price increases. We have decided to hedge our energy needs early for this year. By today, already around 80% of energy cost is secured. In addition, energy prices have come down as expected. Therefore, we expect energy cost in 2023 to be slightly lower than in 2022 as already anticipated. Page 15 gives you an overview of our leverage and debt position. Net debt has been reduced over the last 2 years to a level of around EUR 1.2 billion or 3.5x net debt to adjusted EBITDA at the end 2022. Our debt comprises a shareholder loan from United Internet at a fixed interest rate of 6.75% without any covenants or payback [penalties], which is maturing mid-December 2026. This shareholder note, combined with our robust and highly resilient business model, provides IONOS with an optimal and very predictable financing structure and currently no financing risk. Page 16, you can see the reconciliation from adjusted EBITDA to free cash flow. The most important items are, as already mentioned, capital expenditure of EUR 97 million which is largely driven by the growth investments and will remain relatively stable as well in 2023. Secondly, interest payments of EUR 91 million, which will decrease going forward as we will continue to pay down the shareholder loan. Together with tax payments of EUR 49 million and a positive cash effect from working capital, free cash flow reached EUR 108 million in the full year 2022. For fairness reasons, payments for leasing should be considered. Please note that according to IFRS 16, lease payments are neither included in EBITDA nor free cash flow. This dilutes the comparison of free cash flow margins with historical periods. We believe it is fair to be transparent here. Adjusted for the expenditure in connection with the IPO, which will be recharged to the selling shareholders during the first half of this year, the adjusted free cash flow is just over EUR 100 million with very obvious potential to increase in future. Achim? Let's have a look on the major projects. Thank you.

So let's have a look at some major projects milestones for 2023 on this page, Slide 17. We will continue to work on our expansion of our Internet factory, where we make sure to use all synergies across the group because it leads to operating leverage and make sure that all brands have top of the line products for their respective markets. For our cloud solutions, the infrastructure is a service layer, we are pretty feature complete, having a computer engine with different CPU types we have different storage options, anything from HDD to NVE to object storage. We have software-defined networking. We have firewalls, load [indiscernible] containers with Kubernetes and so on. As already said, on the CMD, we are concentrating more on the platform as a service layer this year, where we want to extend our current offerings of database as a service, for example, or ad services like CAVCO. Of course, we will continue to work on our successful Wordpress strategy by adding more plug-ins and more features to the present suite. And everybody is talking about AI and [Indiscernible] these days. Even if this is not a totally new topic for a tech company like IONOS and it is now becoming really ready for main stream for real-world applications. So we have already started development on integrating AI into some products, for example, into our site builder, into online marketing tools and in our domain recommendation engine, just to name a few. But we also are already using it internally and to some degree, for copywriting support product development, assisted program in QA and many more. I am really excited about the new possibilities that technology has. And I believe AI will drive and speed up digitization of small and medium businesses which will be very beneficial to IONOS.

This now leads me to our outlook for 2023 on the next page. Let me start with total revenue growth. In 2023, we are targeting a total revenue growth of approximately 10% on a constant currency basis. This is in line with the guidance provided at the time of our IPO. In that presence and productivity, including aftermarket, we are targeting growth of 8% to 10%. We expect our web presence and productivity business, excluding aftermarket to continue to accelerate as the impact of our growth investments come through. Our expectation for aftermarket growth is around 20%. It has come down slightly due to higher-than-anticipated growth in 2022, driving tougher comp. For Cloud Solutions, we assume that revenue growth should also be well into double digits, and we expect revenue growth of 16% to 20% year-over-year. We continue to see strong demand from our SMB customer base. However, on the larger cloud customers, we are seeing delays in the decision making process. As we have mentioned previously, 2022 a trough year in terms of margins. And we expect to end 2023 at slightly higher margins as compared to 2022, and growth of EBITDA being slightly higher than revenue growth. All of this, despite the investments in ourgrowth areas and the above-average growth in the aftermarket business, which is still diluting the EBITDA margin. Due to the expected increase in EBITDA and the fundamentally high cash conversion of IONOS, we expect our net debt to fall from 3.5% at the end of 2022 to below 3%. As we are already close to the end of first quarter, I would like to give you some insights on phasing and seasonality of revenue growth and as well margin developments throughout the year. We expect total revenue growth to start stronger in Q1 than the around 10% guided for the full year, driven by aftermarket and it's phasing against comps. For EBITDA margin, we expect Q1 2023 to be lower than the full year guidance, driven the phasing of the marketing spend. Keep in mind, Q1 and Q4 are usually the strongest quarters in terms of marketing. And additionally, we are adding our campaign in Poland. This results in an EBITDA margin for Q1 2023 of approximately 23%. Excluding brand and the dilutional effect of the incremental revenue contribution of aftermarket, we expect EBITDA margin in Q1 to be roughly in line with Q1 of the previous year. Over the next month, in 2023, with growth investments stabilizing the EBITDA margin will start to increase quarter-by-quarter, resulting in a minimum of 27%, we are guiding to for the full year. As a general remark, let me say that we have not assumed any currency effect in this outlook, so it's based on constant currencies. All in all, our guidance is fully in line with the outlook we gave with the IPO we confirming the predictability of our largely subscription-based revenues. Moreover, this outlook is in line with our medium-term targets. We are really confident to continue our growth journey, underpinned by our best-in-class financial profile, combining this growth with profitability and cash generation. Let me summarize on Page 19, what you should keep in mind from today's presentation. We have a sustainable and resilient business with a high share of recurring revenues. Moreover, we just proved the predictability of our revenues towards 2022 results being fully in line with what we guided to. We have a very high visibility on CapEx needs for the coming years given our well-funded asset base. This is also including the Cloud Solutions business. The slowdown of the aftermarket growth is fully anticipated and will dilute the margin less the future. Our brand investments are expected to peak in 2023 and to stay at this level, which will support the margin expansion going forward. A lot of the investments into the Cloud Solutions business have already been made. [Indiscernible] investments for building up infrastructure as a service features, creating a great opportunity for future growth. We have successfully redesigned the product portfolio for cross and upsell and seamless expansion. And looking at our competitive landscape, IONOS is ready to take share. And for the last bullet point on this slide, let me hand over to Achim.

Since I briefly talked about AI and just as a final round out before start with the Q&A session. I asked GPT to write me a short summary about this presentation. [It] came up with the following. So in conclusion, we are proud of the achievements IONOS in 2022. We prepared the IPO successfully achieved strong sustainable growth and invested in building a strong brand. We are well positioned for continued success in the future with a strong market position in Europe and North America and a business model built on four strong pillars. We're confident in our ability to continue growing our customer base and further increasing our ARPU, while delivering strong profitability and cash generation. Well, I think that completely nails it. And there's nothing to add. So with this, I would like to hand it back to the operator to open our Q&A sessions.

[Operation Instructions] And your first question come from the line of Fathima Nizla Naizer from Deutsche Bank.

Thank you. [Indiscernible] two questions. The first is for customer base. Can you give us some color of achievement in 2023 on how the customer base [Indiscernible] -- have you been able to continue your customer acquisition trends? Have churn increased some coverage? And my second question is on your cloud sort of revenue growth for 2023 -- is a wide range, I guess, with 16% to 20%. What you need to do to get to the 20% [Indiscernible] to cover that fantastic? And then also do you still expect the 20% growth of cloud even better as you told us in January? And will the cloud generate some margins in 2023 already versus the management that we saw in 2022? So two broad subjects.[Indiscernible].

Maybe let me start. So on customer base or customer inflow, driven by our brand campaigns -- we actually see very supporting customer inflow over the first 3 months in this year. When it comes to churn, we do see a little bit of impact due to involuntary churn -- due to a catch-up effect from COVID times. However, not on material level. So as well on this point, we are looking positively into the full year 2023. For cloud solutions -- do you want to add something? For cloud solutions, 16% to 20%, what do we need for it to come to 20%? When we're currently seeing is some reluctance in the larger play and the larger customers in terms of decision-making. So what we would need them to decide a bit quicker. Actually, we are nevertheless confident to come in well in this guided area. And we still believe midterm to grow 20%.

Maybe I could add. We always said in the CMD in the road shows that we have a very stable business with subscription-based and small medium business tend to do more digitalization if times are hard. And actually, that's what we can see in the first quarter. So we are pretty, really pretty happy with the inflow numbers. So just like we said and like we showed the last two crisis, in our financial crisis in corona, we don't see an impact in new customer inflow.

Sorry, just want to confirm the breakeven point for cloud and whether there would be some [Indiscernible]?

So we still look into growing this year. So we might be investing still for cloud to be breakeven, and we said it's self-sustaining at the moment, so we are reinvesting everything which we use. So for this year, we'll not be adding a lot of EBITDA in absolute terms. But definitely going forward and that as stated before.

The plan is on using the generated cash for building more products for the long term, we have a higher increase in EBITDA than working under short term.

Thank you. We will now go to our next question. And your next question comes from the line of Stefan [Indiscernible].

Just a couple of questions here. Can you talk a little bit about what sort of non-vectoring items you're expecting for 2023 and perhaps stable in the free cash flow statement, some expectations also on [indiscernible] cash taxes and working capital, I guess, would be helpful. And second question regarding out win and pricing. So we saw 5% increase in [indiscernible] in 2022. Is it possible to split the contribution from what is repricing and what is upselling to customers, I think your customers probably have on average products to ramp peak versus 3.5 or a couple of years ago? What we're expecting for 2023, especially in terms of pricing and the customer setting?

Let me start with the last question in terms of ARPU. So we are targeting to see ARPU growing by majority by cross and upselling. So price increases will not be the strongest driver in our ARPU growth. And as we stated before, we do apply very sophisticated algorithm in terms of Africa -- in terms price increases. And to be honest, if you're looking into total revenues, price increases undertaken in 2022 play a marginal role. We contributing less than 25% of overall absolute revenue growth in that presence and productivity. And we will continue to work on the ARPU driven by up and cross-sell. And then for nonrecurring items, what do we expect for 2023. We do expect payments for -- we do expect expenses for share-based payments. However, we would see the reimbursement of the IPO costs coming in. So that might be netting out. And then I think that's it more or less for it. And then in addition, we will continue on the -- on our stand-alone activities, so carving out the billing system. So that's another item for 2023. But not significantly more to expect what we have seen already in 2022. And then I think cash taxes. So I think on working capital, no change expected going forward. We continue to see a good working capital development on cash taxes, I think we've guided to them going down slightly at the CMD. So they should be in for 2023 as well.

And your next question comes from the line of from Yemi Falana from Goldman side. Please go ahead. Due to no response, I will go to the next question. And your next question from the line of Ben Barnaus from BNP Paribas.

Firstly, for 2023, you're guiding from presence and productivity, revenue gains of 8% to 10%. Can you say how much of that is aftermarket and what that growth rate would be excluding the aftermarket? And then more generally, it would be great just to get your views on what you're seeing in the web hosting market, how the competitive, dynamic, evolving, but we're seeing increasing competition from [Indiscernible]. Just any comment on the outlook.

Take the question.

Let me start with the first question. So for aftermarket contribution in 2023, we are guiding to roughly 20% growth in the aftermarket business. So I think you can figure out the gross ex aftermarket with that one. And then the last question was...

Competitive Landscape hosting. So you mentioned hyperscalers -- hyperscale is only in the cloud sector. So hyperscalers do not touch us in by posting productivity and where we sell domains and by posting an e-commerce and all the shop system marketing automation tools and so forth. So here, I think what we see is continuing what we already said previously is our competitors are kind of pulling back a little bit in many markets because they really want to make some margin now or have to make some margins now. And this actually opens up for mor opportunities for us. And like I said, in the first quarter, we can see a very strong inflow on customers. So that might be also a contributing factor to it. And in the cloud business, the hyperscalers around since we started the business, so there's no additional -- we don't see additional pressure. We don't see additional offerings for them, which is hampering us. So we just continue competing here, with all the advantages we have with the European Cloud and data protection with our more flexible cloud and so on and so forth. So there's no -- in essence, I would say the market is actually turning to our favor in the -- by posing productivity area right now.

You mentioned you're trying to integrate AI feature in that workforce. Are you seeing new competition from AI [Indiscernible]?

That's too fast right now. So first of all, all the major players are, for sure, and we see some results already from some competitors -- everyone is working on integrating AI and what the very good first example is website builder. But it takes much more than just a little bit AI engine to generate a text to make a good website. And so far, the AI engine is not in that shape that you can completely automatically generate a very nice web page will [ C ] optimization, everything just by entering 5 words in ChatGPT. So that's a far way to go. But even then you need the hosting platform, you need the security, the firewalls, all this stuff, which is also important. So we have a very tough technology stake to be a website hoster. And so we don't see big competitors there. We're on the forefront of using that stuff. So we're -- I'm actually excited because that will help a lot of customers to get the web page on earlier, easier and keep the maintenance or having more updates on the web page because things is -- what's hard people is usually generating a tax for the page. Now you have ChatGPT and other AIs, -- you have great support doing this. So for us, it's a benefit. I'm very sure that the AI will to increase our business.

And your next comes the line of Usman Ghazi from Berenberg.

Two questions please. The first one was just on what you're seeing in the M&A environment at the moment, obviously, with the valuation of where they are and financing issues for startups and things. Just any commentary there would be interesting, and if this perhaps, if given the situation, it's become a bigger focus now or not? And then the second question was on the web presence and productivity, revenue outlook, excluding aftermarket, if I just do the math, if the aftermarket domain is going to grow at 20%, and the range that you put out 8% to 10% who are present and productivity implies that excluding aftermarket revenue growth could be in the range of the 5% at the low end and 7% at the high end. So just could you give any color on what would get you to the high end of the range and what would get you to the low end? Is it product function? Is it just macro or something else?

Okay. Let me start with the M&A. So I think as stated before, it is not a priority at the moment. In terms of competition, our strategy is to outperform the competitors on the market with a strong brand, a very sophisticated marketing machinery, et cetera. Nevertheless, we will continue to monitor opportunities and decide opportunistically, especially for product solution, but nothing on the agenda at the moment. In terms of web presence and productivity, Usman, you're right, 5% to 7%, that's in the range. And I think what will drive it is actually how do we see our inflow developing throughout this year? How do we see our churn rates develop for this year. So as I stated, currently, we do not see an issue in any churn rates, but we are not in full control of macroeconomic development, unfortunately. So I think, we gave out a very guidance which is realistic, which we will definitely achieve. So -- and then let's see how the year develops going forward.

[Operation Instructions] And the question comes from the line of [Indiscernible] Redburn.

Just two for me. One's on customers and [Indiscernible]. So the first one of our customers, I've seen you called out sort of weaker demand in the reports published this morning that impacted growth of the customer base and also I sort of assume that due to macro [Indiscernible]. And I appreciate you said that there's no change in inflow of customers. But are your personal consultants seeing any change in the behavior or requirements or sort of the propensity to spend more in customers when they're dealing with them. And secondly, [Indiscernible] market going to spending premiums on expanding their data center operations in the EU, and that's all in response to the demand for data localization compared to GPR. [indiscernible] reports of Google People Cloud targeting the [indiscernible] as well. How do you think this will impact total business growth? Do you think there's a significant risk if the SMB perception of Big Tech [indiscernible] positively to their favor, as a result of these efforts?

Maybe I'll start with the second part -- the Google and Amazon and or AWS and Azure, they are spending billions and billions of money since many years. They just didn't start now. I think they have larger investees these days because of their AI involvement. So there's nothing new. And that doesn't help having a localized data center. AWS has a data Frankfurt, for example, in Germany for a very long, long time, they have the data centers in Paris and France for a long long time, but it doesn't help for GDPR, which is the regulation is different because it's an American old company. So outside of Europe means that you cannot just -- you cannot be compliant -- fully compliant to GDPR. And that doesn't matter how many data centers to build if they have 150, there is no difference in that. So we don't see these arguments, which really help us a lot, and the tenancy in Europe to buy local, you have to be more severe here in Europe in everything we do, starting on software development the hosting in the cloud, there's no shift in that notion just because they have added a few more data centers.

And maybe just on this first question regarding customers. I'm not sure about their weakened demand. So we do not see a weakened demand, especially in our presence and productivity and our SMB customer base. We do see a certain reluctance in decision-making in some areas in cloud solutions for larger customers. But as well there, we are confident that we will be able to compensate this by winning additional SMB customers. So as stated before as well in terms of churn rates, we are confident for the future based on we know at the moment. We do not see a weakened demand in our web presence and productivity suite.

And the next question comes from the line of Eric [Indiscernible] from JPMorgan.

Thanks for the presentation so far. Maybe two questions for me too. First of all, on the clarity around the brand's investments can maybe be a little bit more specific on what you're exactly spending those brand investments on, in the early parts of 2023. And can you remind us on why we should be confident that longer term, the 10% revenue growth guidance for medium term can still be sustained with less overall sales and marketing expenses. And if we consider the brand investments are sort of related to that. And then the second question is, if you can give us an idea about how much the cash in 2023 will be used to reduce the shareholder loan?

Let me start with the marketing or the brand marketing. So what we do, you can see TV campaigns in Spain, in France, in Poland, in Germany and in the U.K. so a good portion of the money goes to TV and also connected to TV and online social media and so on for brand building. And if you start -- if you build a brand, it's harder to build the brand than to keep a certain brand awareness. So that's not the way to do it. You started investing heavy on brands, getting the brand awareness to a certain level but then to keep it, you can release or you can lower a bit, the frequency of the campaigns you're doing and so on and so forth. So does this the normal process, and that's where we're in the middle of increasing the brand awareness right now. At some point, it will level out a little bit and we can come in safe on the brand spendings.

And I think to comment on performance marketing, which was part of the question as well. I think we've driven by the efficiency increases we are seeing year-over-year in our performance marketing KPIs and as well in our performance marketing organization. We are really confident that we have a very good level of investment here to as well drive future customer inflow besides the effects from the brand campaign, which will, by the way, help as well on performance marketing.

A lot states at this year's level. So it's not going to increase. So there is no -- we are at the maximum where thinking makes sense.

In terms of cash, which would use for repaying debt. It should be around EUR 100 million. So we will look into excess cash, which we have available and then pay down opportunistically. As said, we do not have any penalties or repayments.

Is it about EUR 100 million did you repay? Or is it part of $100 million?

Well, we will use roughly EUR 100 million to repay.

Our next question the line of Emily Johnson from Barclays.

I've got two questions, please. The first is on aftermarket. And can you talk about what's driving that growth and into '22 and into '23. Any color on how much of that is coming through [trading] versus parking price volume would be very helpful. And then the second question is on your 2022 guide, you talked about EBITDA growth of at least 10%, i.e. more than EUR 380 million. How should we think about the upside and downside risk to that? And what sort of macro evolution, is that based on? And if macro is better, will you really invest? If top line is worth hard to pull back on to keep it at that EUR 380 million level?

Yes. Let's talk -- let me start with aftermarket and maybe you jump in if you have some additional comments, Achim. So first of all, I think the drivers are still what we said before. So invested in redesigning the product. We invested in our partner base. So we do have new partners on board. This is still driving growth. The majority of the growth is coming from the parking side of the business. But nevertheless, we as well see a very good development in the transactional domain trading part.

Yes. I mean if you look at -- we just say that we still have a very strong -- pretty well strong inflow of customers in reposing productivity, everything really needs to domain. So you can see from that demand that there's also a very high demand for second-hand domains for used domains, because domains are scarce resource in the end. You cannot have as many -- just can have every name just once. And so it continues to be a strong business. I think that's one of the drivers. And one of the more important drivers for our business.

Correct. And then in terms of macro development upside to EBITDA, et cetera. So our guidance is based on current status as we cannot predict the future for things we do not have under control, unfortunately for 2023. This means the current level of inflation as well as current levels of energy prices. But to mention there, we have already secured 80%. So the volatility is really low there. So -- and then in context of demand, we assume a constant level versus 2022. And already, we are seeing this actually being reconfirmed in the first 3 months. And then I think what can we do if revenues do not come in as expected, et cetera. So we do have a lot of control of our cost base, obviously. And then performance marketing and brand marketing can be adjusted if needed. If we do not believe they deliver additional value or revenue growth in future.

I will go to the next question. And your next question comes from the line of Stefan from [Indiscernible].

Just coming back on the marketing and the push that you've been doing, can you tell a little more in terms of geography where you think the most [ traction ] and where you think that in the near future you see some market share gain? That is one. And the second. It's coming back on the cloud division. And I know in other ways, you need to split some of the costs between the cloud and the rest of the business because you could some of the [indiscernible], can you tell you more about how much of the CapEx is sort of directly linked to the cloud strategy? I guess what I'm trying to understand is our fact there could be a swing in your free cash flow if you think that cloud [indiscernible] is below your expectation and potentially decide -- let's say, go slower in terms of cloud expansion.

Should I start with the main credit not the main market and market share. So it's not as easy to figure out what's your market share and how you gain month-over-month because there's no reliable number anywhere we can deduct from the domains. From how many domains, what company is registering or losing and so on, we have a certain overview. And there's some other companies doing some benchmarks. I would say we don't have a specific region. I think we are gaining in basically all of our regions, to be honest. If you look at the U.S., I just mentioned you've already cut down on marketing. And if you look across Europe, we also see that tenancy for other companies. So I think we have a -- looking at the inflow we have in the first quarter. I wouldn't say we're losing anything anywhere. So we're gaining market shares across our core markets.

Yes. And in terms of CapEx, I think growth CapEx is linked to Cloud Solutions revenues. And actually, it will grow or not grow in line with revenue. So we wouldn't see a change in percentage of revenue going forward. If this is what you're looking for Stefan.

The next question comes from the line of Usman Ghazi from Berenberg.

I'll try my luck with three questions. [Indiscernible] to ignore the one that's uncomfortable. The first one is just coming back to Stefan's question on the cloud CapEx. I mean, your comment was that the growth CapEx is linked to cloud solution revenues, but that would imply a cloud CapEx is sitting at roughly 50% of cloud revenues. I mean if I look at your peers, whether it be digital ocean or [indiscernible] these other companies that are special in the cloud companies in the public cloud space. They're spending roughly 20% of revenues in the cloud, growing double digit. So obviously, you're spending much more. And I just wanted to understand, given the efficiency of cloud platform. Is it that the increment you're spending about what your peers are spending as a percentage of revenue is in product development that is yet to yeild revenues or more is it in capacity? Or any color there would be helpful. The next question was just on what [Indiscernible] strategy is for payments specifically to payment and commerce linked to payments given that seems to be a key pivot for at least and they've been rolling out internationally over time. It's just -- I mean, do you see the need to own a payment facilitation that forms in order to be competitive in the space or not? And then just the third question was on the -- I mean, your guidance on the EBITDA margin phasing is interesting because it does imply a very strong integrate for margins in 2023 as well above 27%. I guess, which obviously bodes well for 2024 and onwards. Is that exit rate right to look at and when you're looking beyond 2023 or...

Let me start with the second question. Payment system is it necessary or not? I don't think it's necessary. There's a lot of globally -- global players around there, which do a great job, which we can partner with and which we do. So if you buy a shop solution with us, and you have the option of picking one of them. I don't think it's necessary to own them to be partnet with them -- make some money out of it. But the most value is for us, we are a hosting company. So we are offering the shop system with a monthly payment, fixed rates, not depending on sales. And I think margins of these sales are coming down because as a customer, how much you want to pay as a percentage of your revenue you do with that shop for, the hosting company, offering the payment systems. There's a lot of competition out there we can use all that just to do the analog and say, "Hey, we have open or own a logistic company? Would you have to buy FedEx tomorrow just because we have an online shop and you need to ship some products." I don't think so either, right? So I think we concentrate on our hosting solutions, e-commerce solutions, a lot of plug is a lot of cross and upsell options in that area, and we just partner with one off or actually multiple off the large players worldwide.

Yes. Maybe to comment on the Cloud Solutions CapEx and the growth CapEx. So to be precise, roughly 2/3 are directly linked to Cloud Solutions revenues. The other one is used for additional customer growth, building up new data centers, et cetera, investing in our existing data centers besides maintenance. So it leaves us, I think, with a comparable percentage in terms of revenues. And then looking into EBITDA margin exit rate. I think, Usman, I didn't get your question. What do you mean with exit rate. So going forward, how the EBITDA developed then into 2024?

Yes. So exiting meaning, it is to get to North of 27% when Q1 would be far below that would mean that the Q4 EBITDA margin is obviously relevant 27% rate, to be maybe it's 30%, I don't know it. But that kind of trajectory implies a very strong development in 2024. So I just wanted to see if there's any reason to extrapolate or not to extrapolate.

So I think -- so first of all, I think as well, it needs to be noted that EBITDA margin levels depend on the brand investments or the marketing investment made in this quarter. So that's definitely something where EBITDA margin gets a bit volatile quarter-over-quarter. And this is fully under the control of us, obviously. We do invest where we do see valuable customers and when we do see our brand investments coming through as we currently see with very good increase in aided brand awareness. So I think -- but the generally, I think we are looking optimistically into 2024 as well in terms of margin development. And our midterm guidance for 20% plus is still valid.

We will now go to our next question. Your next question comes from the line of Derik Marco from [Indiscernible]

Just one on my side on pricing. Can you repeat the comment you made earlier in the call about the impact of price increase in 2022 and what do you expect for 2023, sorry, I need that far? And what is it [Indiscernible] to break up the tight increasing [indiscernible] between [Indiscernible] and clouds of the [Indiscernible]?

So the comment I made earlier was that roughly 25% of absolute revenue growth in that presence and productivity were driven by price increases. So a very small part actually for the whole business. And going forward, we will continue to focus on cross and upsell rather than price increases, but we do have very sophisticated algorithms to increase prices across different products, customers, et cetera. And we do adjust this based on development in the market, development of our customers et cetera.

And for the cloud business, we didn't do any price increase last year. I think we don't plan it for the year so far.

I will now hand the call back Stefan [Indiscernible], for closing remarks.

Thank you, operator, and thank you, everyone, for attending our today's call. Please do not hesitate to get in touch for any follow-up questions. Have a nice day. Stay safe, and goodbye. Thank you very much, everybody.