IONOS Group SE (IOS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the IONOS Group SE Publication of the Q2 2026 Results Conference. I am Maira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Stephan Gramkow. Please go ahead.

Good morning, and welcome to IONOS Analyst Investor Call for the first half of 2026. My name is Stephan Gramkow, and I'm heading Investor Relations at IONOS. Let me walk you through today's agenda. Our CEO, Achim Weiss, will open with the business and strategy update. Patrik Heider, CFO of IONOS, will then cover the financial results, Q2 results and full year outlook as well as the midterm targets. Both will be available for questions after the presentation. I would now like to hand it over to Achim. The floor is yours.

Thank you, Stephan, and good morning, everyone. Let me give you the headline upfront. The first half of 2026 was a record period for IONOS. Customer growth reached an all-time high. We have successfully launched the AI Phone Receptionist across all markets. With the newly introduced AI App & Site Builder, we are beginning a great Vibe Coding product to small- and medium-sized businesses built on our sovereign European cloud infrastructure. We are very pleased with the development so far, and we will walk you through what is driving this momentum. In the second quarter, we added 100,000 net new customers, bringing our total base to 6.91 million. This is a strong start in the first half year and consistent with our expectations of further accelerating customer growth. The quality of new customers remains excellent. We continue to grow revenues across all relevant product lines from web hosting to communications, back office, domain and cloud. Looking at the second quarter, revenue growth was particularly strong in communications and back office, online marketing and website builder. On the right-hand chart, you can see the rising revenue share of AI in Web Presence & Productivity. We expect to already reach around 50% this year, further growing to 80% by 2028. AI is embedded across our entire product ecosystem. In Web Presence & Productivity, we are integrating AI at every layer as an embedded feature in the onboarding experience as a stand-alone product from the AI Phone Receptionist to the new product AI App & Site Builder, which we will discuss in more detail shortly. In Cloud Solutions, we are delivering sovereign trusted European infrastructure for both SMBs and enterprise clients. Our portfolio extends from public and private cloud to specialized AI infrastructure, including the AI Model Hub, GPU service and app integrations such as n8n or OpenFlow on VPS. Let me give you an update on the AI Phone Receptionist launched in Germany and the United States at the beginning of this year. As a reminder, the product operates as virtual employee for small businesses. It answers and manages calls in more than 20 languages trained on the customer's own website and knowledge base, handling requests, bookings, capturing leads around the clock and delivering structured call transcripts directly to the business owner. The early traction is significant. Since launch, we had generated around 15,000 subscriptions. ARPU for the AI Phone Receptionist has continued to expand, rising to around EUR 70 per month, more than doubling from Q1. Customer satisfaction is high with an NPS above 50. The adoption curve and the customer feedback confirm we are addressing a real and underserved need. These results have been achieved with very limited marketing investment until June, where we finally started campaigns across all channels, including TV. The AI App & Site Builder launched in July, we take another step in expanding the Momentum ecosystem, bringing the power of generative web application development to small- and medium-sized businesses. The approach is straightforward. Business owners describe what they need by text, by voice or by uploading a screenshot and receive a fully functional web application within minutes. Unlike traditional website builders, which produce static pages, our platform generates complete programs with connected databases and real business logic, requiring no programming skills, no agency involvement and no additional contracts. The range of possible applications is broad, company websites, product configurators, appointment schedules, internal dashboards, pricing calculators, just to name a few, all delivered on our own European GDPR-compliant cloud infrastructure. The new app builder is available in different plans, including a domain, hosting and e-mail. We're giving SMBs a faster, smarter and more capable alternative to traditional website building tools integrated into our Momentum platform. Take the example of a photovoltaic company on the left. Until now, the company had a self-built website that was static and had limited functionality. Using the App & Site Builder, the company was able to create a new website in no time at all. While it also includes a comprehensive calculator for photovoltaic systems without writing a single line of code and without any additional software needed. The range of use cases extends well beyond external communication in customer-facing applications. The product works just as well for internal tools from project and KPI tracking dashboards to internal workflows or intranet applications. AI Phone Receptionist is the first product within a much broader platform, a fully integrated modular ecosystem built around a central intelligence layer. The AI Frontdesk, which combines AI Phone Receptionist with the recently launched AI Chat Assistant, manages all inbound communication and feeds real-time data directly into the Knowledge Hub. The AI Presence Suite is the online identity for our customers, websites, shops, web applications created by the AI App & Site Builder directly connect to other tools. AI Marketing Suite is the central hub for all marketing activities. It optimizes visibility, manages campaigns and online reputation automatically. The service layer provides additional tools and functions to the system, including CRM and document management. The Knowledge Hub is the foundation. It aggregates the customers' data, documents and interaction history into a unified, continuously evolving intelligence base so that every tool in the suite operates with genuine contextual relevance. The compounding dynamic here is powerful, the more a business engages with the system and the more apps of the Momentum suite the customer is using, the more the Hub learns. IONOS Momentum is not a collection of tools. It is an intelligent and agentic self-learning platform, a central hub for managing all digital workflows. As we add more apps to the Momentum suite, we, of course, expect ARPU to expand further. At this point, let me turn our financials for the first half year and the second quarter, I do hand over to Patrik Heider.

Thank you, Arthur, and good morning, everyone. Let me walk you through our financial results for the first half and the second quarter 2026. In the first 6 months of the year, we generated EUR 701 million in total revenue. Web Presence & Productivity continues to serve as the backbone of our business, contributing 83% of revenue at EUR 581 million. Cloud Solutions accounted for 15% coming in at EUR 102 million. Adjusted EBITDA reached EUR 245 million, which translates to a strong 35% margin. This performance provides us with a very solid foundation for the remainder of the year. Let us look at the first half in more detail. Revenue grew by 6.9% year-over-year or 8.2% on a constant currency basis. This keeps us firmly on the robust growth path we have established in recent years. Adjusted EBITDA increased by 3.5%, bringing our H1 margin to 35% compared to 36.1% in the prior year period. This slight margin variance is simply driven by the timing of our marketing investments. As we have noted before, we align our marketing spend with peak customer acquisition windows. The marketing investments in the first half 2026 were intentionally more front-loaded compared to the previous year. Adjusting for higher marketing investments and FX effects, adjusted EBITDA would have increased by 8.4% with a corresponding adjusted EBITDA margin of 36.2%. On top of that, while we benefited from positive currency revaluation gains last year, currency revaluation was negative this year. The net effect was EUR 11.5 million. Our underlying operational performance remains excellent, and we are fully confident in reaching our full year targets. Turning to the second quarter. The picture is equally encouraging. Revenue grew by 8.1% year-over-year or 8.8% in constant currency, showing a clear acceleration in underlying momentum. This demonstrates that the prior year comparatives are normalizing as expected and that our record customer cohorts from 2025 are contributing more significantly as their initial promotion discounts roll off. On profitability, Q2 adjusted EBITDA reached EUR 127 million, representing a 36% margin. As already mentioned, the H1 marketing spend was front-loaded by design and is fully built into our full year plan. It does not change our course. You can already see a sequential margin expansion from 33.9% in the first quarter to 36% in the second quarter. In short, Q2 delivered strong revenue growth, accelerating constant currency momentum and expanding margins compared to the first quarter. We are well positioned for the second half. Let's now look at operational development across our 2 segments in Q2. In Web Presence & Productivity, revenue rose 7.3% year-over-year or 8.1% excluding currency effects. This steady performance continues to be driven by subscriber expansion alongside effective cross-selling and upselling across our product portfolio. In Cloud Solutions, revenue expanded by an impressive 19.5% or 20.4% on a constant currency basis. I'll share more details on this segment shortly. External revenue growth reached 9.1% year-over-year, which is a particularly strong result on an external revenue -- reported basis. Meanwhile, intercompany hosting services to United Internet Group companies contributed EUR 8.5 million in Q2, down from EUR 10.9 million last year, reflecting the step down we had planned. Regarding our operational performance, our total customer base now stands at 6.91 million as of Q2 2026 with 100,000 net new customers added in the second quarter. ARPU increased to EUR 16.70 per month, up from EUR 16.30 a year ago. These expansions reflect both strong portfolio upselling and the progressive maturation of our 2025 cohorts as they transition to standard pricing. This dynamic is unfolding precisely as planned, generating high-quality durable revenue streams. At the same time, monthly churn remained stable at approximately 1%. The best-in-class retention rate underlines the stickiness of our platform and the strength of our customer relationships. Looking forward, the combination of growing customer numbers, rising ARPU and a low churn creates a powerful compounding engine for the rest of 2026 and beyond. Moving to Cloud Solutions; revenue in Q2 surged by 19.5% year-over-year or 20.4% FX adjusted, making one of the strongest results in our history. Total CapEx in H1 stood at EUR 52.3 million, representing a CapEx ratio of 7.5% of revenue compared to 3.5% last year. The main driver was growth CapEx with around EUR 45 million compared to EUR 20 million in the previous year. In prior years, our investments were weighted towards the second half of the year with a particular concentration in the fourth quarter. This year, that pattern has shifted. Anticipating rising hardware prices, we made the deliberate decision to procure early and proactively, securing favorable terms ahead of the market. As a result, a significant share of this year's CapEx has already been incurred in the first half. We reaffirm our full year CapEx target of EUR 75 million to EUR 85 million, returning us to roughly 6% of revenue. While we continue to manage recent hardware prices increases through internal mitigations, we expect full year CapEx to land near the upper end of that range. Let me now walk you through the cash flow performance. Starting from our H1 adjusted EBITDA of EUR 245 million, we take out the adjustments like nonrecurring expenses for the billing carve-out and the expenses for the long-term incentive program to get to reported EBITDA. After taking into account EUR 52 million for CapEx and deducting taxes, working capital movements and lease payments, we generate free cash flow after leases of EUR 126 million. This compares to EUR 168 million in the prior year period. The difference is mainly driven by 3 factors. First, H1 2025 included EUR 32 million of higher AdTech EBITDA. Second, CapEx this year was more H1 focused compared to the backloaded schedule in 2025. And third, as mentioned, our marketing spend was more front-loaded into H1. Year-to-date, we also have repurchased EUR 84 million of our own shares. Overall, our EBITDA to cash conversion remains exceptionally strong, underscoring the predictability of our cash flow model. Our cash generation translates directly into deleveraging. As of June 30, 2026, net debt stood at EUR 676 million, comprising external bank debt less cash and receivables from United Internet. Our fixed interest rate remained stable at 4.7% with our term loan maturing at year-end, preparations for refinancing are already well underway. Our leverage ratio stands at approximately 1.4x net-debt-to-adjusted EBITDA. This is slightly up from Q1, primarily due to our share buyback program as we expect leverage to step down moving forward. This low leverage and strong cash flow give us a substantial balance sheet stability and financial flexibility. Before discussing our outlook, let me give you a quick update on the sale of AdTech business. Since classifying it as a discontinued operations in Q3 2025, its performance has been excluded from our core revenue and EBITDA. While [indiscernible] has been strong, the broader digital advertising market has not seen a sustained recovery. Alongside the sale process, we are running a restructuring plan to align costs with current revenue levels. Regardless of market trends, we still expect the transaction during the second half of the year. We are very happy with the performance in the first half year. For the remaining course of 2026, we expect the positive performance to continue. Therefore, we are refining our guidance accordingly. Currency adjusted revenue growth is now expected at around 8%, which was previously expected at 7%. Revenue, excluding intercompany revenue is now expected to grow approximately 9%, which was previously expected at 8%. Within that, Web Presence & Productivity is projected to grow around 8%, up from 7% to 8% before. Cloud Solutions is now expected to accelerate to around 10% to 15% compared to our previous expectation of around 10% growth. Intercompany revenues are expected between EUR 30 million to EUR 40 million, which is unchanged. As well, we will continue to invest in growth initiatives, adjusted EBITDA is still expected to reach EUR 530 million with the adjusted EBITDA margin projected at 37% to 38%. Adjusted EBITDA reached EUR 245 million in the first half year with a margin of 35%, which is well on track. Finally, we are reaffirming our midterm targets. We are aiming for double-digit growth in Group revenues above 10%, supporting by high single-digit growth in Web Presence & Productivity and 20% growth in Cloud Solutions. Regarding profitability, we are targeting an adjusted EBITDA margin of 40% in the near to midterm. This will be driven by integrating AI-driven synergies directly into our operations. This approach ensures sustainable margin improvement while allowing us to reinvest in future growth opportunities. We will present an updated midterm guidance alongside a clear capital allocation strategy by the end of this year, early next year. That concludes our formal presentation. And Achim and I, we are now happy to open the floor to your questions. Thank you.

[Operator Instructions] The first question comes from the line of George Webb from Morgan Stanley.

Well done on the good half year. A few questions to kick off, please. Firstly, just on the guidance and then coming back to what you said at the end there, Patrik, noting that revenue growth upgrade, but you've held the adjusted EBITDA guidance. What are the kind of dynamics you're doing around investments around things that means that better top line hasn't dropped into an EBITDA upgrade? Secondly, on the AI Receptionist, you're talking to 15,000, I think, total services since launch. I presume that's equivalent to orders. To the extent you have the data, could you maybe isolate how many repeat paying customers you have? So those that have been live with an AI Receptionist for multiple paying months in a row. And then lastly, a bigger picture one on the EU's AI Gigafactories initiative. Now that the formal call for tenders has been launched and given that program's evolving scope and current funding structure, I'd appreciate your thoughts on how you think about that project and its attractiveness to potentially participate in.

So first of all, thank you very much. I am starting, George, with the first question for the guidance. As we do see great opportunities and momentum in top line, we do want to reinvest also obviously into our future beyond 2026. That means we want to really invest further into marketing and also into the AI ecosystem we are building up. And I did also mention the 2027 outlook a bit because here, definitely, the midterm guidance is nearer than we think. So the midterm guidance will be adjusted by the year-end and also in the beginning of next year. That said, the margin will definitely be very close around the 40% already next year because we are driving AI synergies. So we want to focus on top line, as we always said this year. And this is why we want to invest this year further into the AI ecosystem and also marketing spend. And maybe?

For the third one. Yes. The 15,000 orders we have, yes, these are real subscriptions. The Phone Receptionist is 15,000 real subscriptions. We usually have 4 weeks, 1 month free in the beginning as like a product campaign offering, which is, by the way, much lower than what we usually have in campaigns for web hosting for other products. So this is great. And these are really real customers, paying customers, real subscriptions. And about AI Gigafactory, yes, you're completely right. After many, many delays, the European Union finally came out with the tender last week. And honestly, we are just filtering through it and making up our mind right now, just dissecting everything and see what our options are. We have a lot of different options, a lot of different possibilities, but it's a bit too early for this call to tell you what our plans are because it just happened last week.

Yes. Can I just come back on the AI Receptionist. If I interpret that 15,000 subscriptions, is it -- would that be like the run rate at the end of the first half that you had 15,000 customers live with an AI Receptionist or is it a different kind of metric?

No, it's just accumulated customers from the beginning of the year. But like I said, the real marketing actually started last month. So then it was just on the web page, of course, and we did some online marketing, some performance marketing like on a small scale. And now the real marketing started. And so we expect a high monthly net build or net customer growth in that section because we really see that as valued customers and we add features all the time, like we just added the Chat Agent, not just phones, it's going to be a multichannel Frontdesk agent, Phone Receptionist will probably not be the right word in some months anymore, but it's your front desk and taking calls and answering calls and doing support for you and order entries and anything. So we expect a steady stream of new customers every month.

The next question comes from Ines Mao from BNP Paribas.

This is Ines from BNP Paribas. I have some questions about your cloud business. Could you give us more color on the cloud demand trends if we set aside the contract from ITZBund? And typically, private cloud has been growing very nicely. Do you expect this to sustain? And is demand mostly coming from government bodies or SMBs? The second question is about your data center capacity. Do you think it's enough as of today if cloud growth continues to exceed expectations, setting aside ITZBund contracts? And just one final question on the cloud business again. As you push for more AI infrastructure products like model fine-tuning, for example, do you have the capacity in terms of GPU servers to meet this demand or not or will it require more CapEx from tuning?

Yes. First, I mean, the cloud is really across the board. We have a very broad range of customers and a lot comes from small and medium size, which is actually our preferred target group. So we're not hunting for the large DAX 30 companies or something. We have a lot of customers on the public sector as well. And you said excluding ITZ, but that's fair. ITZ and there's no data center capacity needs for the ITZ anyways because it's their data center, so we can't take them aside completely for the questions you had. So the growth is really in the right spot for us in small, medium to midsized companies. That's a big portion. And then if you talk public sector, it's a lot of smaller communities. And so it's not like federal contracts mostly. It's across all of Europe in different public sector small entities. So that's a very nice growth there. Data center capacity, we don't really have an issue because most of the cloud is actually in co-located data centers. And there's still room to grow. So we have already for the next foreseeable future, we have enough room and we can always extend. We just rented a new site in Frankfurt beginning of the year. So I think it was in April. So that should be fine. The Model Hub, [indiscernible] obviously expanding in hardware and capacity as we need it. We scale this with the customer demand. It's not like you don't get hardware. It's a little more expensive these days, but the GPU cards and stuff are available to us, and we have contracts with NVIDIA and everything. So there is no worry in being able to deliver.

And maybe just from my perspective to support what Achim said, in, give you a rough idea about growth without ITZBund, which would have been amazing already with over 12% in half year 1. And that gives you a signal that we are becoming more and more independent from ITZBund as well and the underlying performance in that segment is great.

Next question comes from Stephane Beyazian from ODDO BHF. Next question comes from Victor Cheng from Bank of America.

Can you hear me?

Yes, we can hear you. You can proceed.

Maybe 2 from my side. I guess, first of all, you talked about CapEx going forward from Q4 to H1 now. But if we think about the cloud growth, putting aside IT, step 1, if cloud growth continues to be a bit stronger than expected, should we expect more CapEx spend long term above the 6%? And then second question, just around the cloud solutions -- sorry, just around the WPP, the customer growth still very strong in Q2, EUR 100,000, but sequentially down in Q1. Can you give us maybe a bit more color around the trends there, the revenue mix, what is doing a bit better or maybe less good versus Q1 and Q2, please?

I'll start with CapEx, I guess, and you can take over here. So for CapEx for this year, we don't see any issue because we have -- at the beginning of the year when it was foreseeable that the hardware prices are rising a lot, we already did buy actually what we need for this year. So there would be no surprise in the CapEx budget for this year. You asked also about long term. I mean, of course, with the high growth in the cloud and with the hardware prices more -- the hardware more expensive than the previous year or this year when we had -- already supply contracts, we have to expect the CapEx going up a little bit, but always in demand of -- or always in relation to demand we have. And we can steer this. We can say, okay, we want to have like -- do we want to sell more of dedicated service, for example, which is our cloud business, but also CapEx. And where do we want to invest the CapEx probably rather in cloud virtual service than rather in dedicated service, for example. So we have a little -- we have some means of steering where we invest the CapEx most effectively and efficiently. But I would expect -- we'll see this when we do the budget for next year. I already expect that with the same cloud growth, we will have a little higher CapEx next year.