OVH Groupe S.A. (OVH.PA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to OVHcloud Q1 FY 2026 revenue. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud; and Stephanie Besnier, 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. Thank you very much to be with us today for our Q1 FY '26 revenue conference call. And we would like to wish you a very happy New Year, '26. Let's start with Slide 2 for our key highlights of the Q1 '26. So as we announced, we generated EUR 275 million in revenue. We made more -- we made 6% of growth like-for-like and we have a solid rotation rate of about 105%. With this Q1 FY '26 figures, our unchanged financial discipline, we can confirm our FY '26 guidance, including free cash flow positive generation. Regarding to our business highlights, some highlights, first is, we signed additional emission practical deals. We announced LCH but also, we signed several contracts on our offer OPCP, on-prem core platform. We continue to expand our presence in -- to meet the sovereign demand after Paris and Milan. We announced deployment in Berlin that will be opened early in '27. We provided -- we've been working on providing high-performance AI workload. We partnered with SambaNova to provide high-performance AI workload dedicated for large head inference. If we talk about operational initiatives, of course, we'll probably talk about, we redesigned early in '25 our supply chain that allows us to deliver our services to our customers and at the same time, respect our investment on budgets. The second is we implemented -- we started to implement and we accelerate the implementation of AI usage internally to boost our productivity in the different areas, different departments, and we focus a lot on the website, on the user experience on the website, on the support, on the billing improvement, specifically for the digital startups. And the last one is that we didn't change any disciplined on cost. We really focus on the cost. We already have this model of the fixed cost that will allow us to really to have this protection on our margins. I will let Stephanie to talk about more details about financial results.

Thank you, Octave. And hello, everyone, this is Stephanie speaking. Thanks for being with us, and of course, Happy New Year to everyone. So as Octave said at the beginning, during this Q1 '26, we delivered a like-for-like growth of 6%. So this was driven by, first, a private cloud, up 4% like-for-like. Second, our Public Cloud segment, very dynamic, up 15.8% like-for-like and which is the first contributor to our growth. And third, Web Cloud up 2.3% like-for-like. Let me now turn to Slide 5. We'll do a deep dive on each of our business segments. So first, in the Private Cloud, which includes Bare Metal Cloud and Hosted Private Cloud, we delivered EUR 167 million in revenue in Q1, which represents 61% of the group's revenue. As highlighted on the right-hand side of the slide in Bare Metal Cloud, so for starters, our customer acquisition strategy is delivering its first results with an increase in number of customers, for scalers now, we delivered a solid growth from existing customers, which demonstrate our capacity to upsell and cross-sell our customer base. And for corporate, we are impacted by the churn of 2 customers that decided to re-internalize their infrastructure. On Hosted Private Cloud business now, we are seeing early adoption of our new offers from starters. We're now focusing on finding the right price positioning to further accelerate, scalers continue to optimize their infrastructure and corporate kept on delivering a good performance driven by demand for sovereign offerings in Europe. So now we move to the next slide. We'll talk about Public Cloud. In Q1 '26, our Public Cloud segment reached EUR 58 million in revenue, it represents 21% of total revenue, and it grew by 15.8% like-for-like. In our Public Cloud core business, which means IaaS and PaaS solutions, we benefited from a solid starters customer acquisition, supported by the ongoing upgrade of our website, our manager, our customer onboarding process and support. Scalers also grew significantly, driven by a strong farming, thanks to our product cross-sell capacity. And for corporate, we had a decent start to the year, even if we still need some additional features to fully unlock the segment potential. In addition, the rollout of public cloud in our 3AZ regions boosting cross-sell opportunities, it attracts new customers that are seduced by our mission-critical offerings. Finally, regarding our entry-range offers, VPS, it's back to high single-digit growth this quarter and supported by the launch of a new range, requiring additional supply capacities. We move to the Web Cloud segment. Now on Slide 7. So the Web Cloud segment reached close to EUR 50 million in revenue, 80% of total group revenue, and it grew by 2.3% like for like. If we exclude our legacy subsegments, so Telephony and Connectivity growth reached 5.5%. The performance is driven by the first results upon new competitive positioning for starters. And again, we are working on improving the customer experience to improve the growth of the segment. Regarding scalers, we are implementing a dedicated partner program, dedicated for web agencies to make sure they have a seamless experience and can grow at OVHcloud. Looking at our geographical split now on Slide 8. So in France, revenue grew by 5.1%. Public cloud delivered a strong double-digit like-for-like growth, driven by good customer acquisition. In private cloud, we signed mission-critical and OPCP contracts and in Web Cloud the new positioning is starting to show first results. Let's now look at our international sales, which account for 52% of our revenue. So first, in the Rest of Europe, growth reached 4.1% like-for-like. We recorded a satisfactory early start for public cloud of the Milan 3AZ region and private cloud performance was impacted on the other side by the departure of a corporate customer. In the rest of the world, Q1 like-for-like growth is 10.5%. The growth was driven by the encouraging rollout of public cloud in the United States while private cloud growth in the region remained resilient in the first quarter. I'll now hand over to Octave for the final slide on the outlook.

Thank you, Stephanie. So let me confirm our guidelines for FY '26. So we expect to have this like-for-like revenue between 5% and 7%. Adjusted EBITDA margin above FY '25, CapEx part of the revenue 30%, 32% and of course, levered free cash flow positive. Now we are open to the questions that you probably have.

[Operator Instructions]

Happy New Year. I've got a couple of big picture questions, if I can. Firstly, I guess we've seen increases in memory and other component pricing in recent months. Can you talk a little bit about that strategy you have to mitigate those factors as you go through the rest of FY '26, both in terms of procurement and maybe in terms of eventually passing on some of that through to pricing? And then secondly, through last year, there was increasing discussions around the EU's early-stage plans to help fund the creation of AI Gigafactories across Europe. I'm not sure we've discussed this topic previously. So it's a pretty simple question. I guess how do you think about that topic? And is that an opportunity you have any interest and potentially participating in, should maybe France or some other adjacent country be granted one?

Okay. So on the first question about the CapEx. As you know, there was a global memory and disk supply chain is under pressure. One year ago, we knew that it would happen. So we started our anticipation 1 year ago. So what we have done is that we took a step ahead and fully changed the supply chain early '25, with optimization of component management, which increased the availability of assembling servers. So for FY '26, thanks for this anticipation, we don't have an impact on the cost of CapEx. Why? Because we have built the inventory in FY '25. And early in FY '26, we make the support to our growth trajectory in all our FY '26. That means that we pull in the CapEx in between September and December, that will protect our prices for all FY '26. So that's why we control all the costs for FY '26. In FY '27, we anticipate the increase of the cost of CapEx linked to this shortage. You know that, as I said, OVH will be in this step ahead mindset. So if any -- there is any decisions to make, we will be first to make that on the market. On the AI Gigafactories, so we've been talking about this initiative with European Commission. And what we -- we are very surprised about the fact that all the initiatives, they are country. And even if we talk about the European Commission, we don't talk about Europe. And as a European cloud provider, we don't have just a country-by-country strategy. We have a global European strategy. That's why we started to -- because of this initiative, we started to talk with the different partners, maybe future partners in Europe, different countries to build something across different countries and not just France, Germany, Poland, Spain, et cetera. We would like to design some of the build, something that is more by 6, 7 countries. And of course, it doesn't mean that it will be one big data center, but with a lot of GPUs, but it will be more per country, smaller, but more per country with more sovereignty and approach that what we see for the moment on the market. So we continue to follow this initiative and to see what it will mean in the future. But for the moment, we prefer to build that with the future partners that we are talking with, because also what is really important is that we want to talk about the revenue, not just talking about the CapEx and not about the OpEx, about the data center, but also who will pay for that at the end of the day. And for the moment, it's just the initiative to create the assets. but nobody talks really about how it will be used and who will be used and who will pay for that. So our approach is more pragmatic talking with the go-to-market partners in every country that will help us to deliver the revenue, to find the customers, to find the needs and deliver the products more that capacities, CapEx and et cetera. So we are more in this mindset of -- for these kind of initiatives.

The next question comes from Derric Marcon from Bernstein.