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

Hello, and welcome to the OVHcloud H1 F '24 Results. Today's speakers will be Michel Paulin, CEO; and Stephanie Besnier, CFO. I now hand you over to OVH team to begin today's conference. Thank you.

Hello, everyone. I'm Michel Paulin, CEO, OVHcloud. Thank you very much for being with us today with our H1 fiscal year '24 conference call. Let's start with Slide 3 for the key highlights. Overall, we are very pleased to report that we have successfully executed our strategic road map, maintaining a disciplined focus on business development and free cash flow generation. We generated 10.8% like-for-like growth in the first half of the year. The top line growth was strong, especially in Q1, but a bit softer than anticipated in Q2 on the back of a surprisingly [ mild ] economic growth in Europe. But we are pleased to benefit from the pickup in the U.S. in the end of the quarter. Revenue retention remains high globally, as a strong result of strong commercial execution. Our EBITDA grew by 19.8%, and our EBITDA margin substantially increased at [ 39.9% ] (sic) [ 37.9% ] up 2.5 points, thanks to our robust operating leverage driven by tight cost control. Our plan to optimize CapEx allocation to maintain growth and to reduce capital intensity is bearing fruits, as a result -- and as a result, we generated a positive unlevered free cash flow for the second semester in a row. This achievement underscores the strength of the strategic plan we presented in January, which allowed to maintain strong revenue growth and improved cash generation. As a result, our financial leverage is now stronger than ever with a lever of -- level of [ 1.8x ]. Moving to the next slide. Early January, we presented you an update of our strategic plan. Despite the current short-term challenges, we -- when we consider the broader picture, we are delivering on our strategic pillars, which remain at the heart of our long-term vision. First, we are the reference for data sovereignty and will continue to meet customer demand for more control over the data and immunity to extraterritorial laws, and we will continue to lead the way in addressing this highly critical topic of data sovereignty. Second, innovation is one of the core values of OVHcloud. We will continue to propose new product as today with our, for example, our new AI solutions, and we are preparing for the next tech revolutions such as Quantum. Third, our objective is to consistently deliver sustainable and profitable growth. H1 results are a good demonstration of it. We are organizing our sales and marketing strategy and cost structure for the long-term profitable growth. Our fourth objective is to maximize cash generation. We have invested a lot in recent years, and we will continue to do so to sustain our growth momentum, and this investment will allow us to maximize cash generation, as we have already demonstrated this semester. The next slide is looking at Q2 fiscal year '24, as where we have demonstrated the strength of our business model despite the softer momentum than expected in Europe. On the left-hand side of the slide, you can see that our customer remains highly loyal. Our revenue retention rate for Q2 stood at 108%, with H1 churn around 2%, in line with our historical figures. H1 was marked by the addition of several new logos in Europe with the European Commission, for example, in India, with ServiceNow to answer to local constraints on data sovereignty, as OVHcloud is the sole provider of OpenStack in India, in the U.S. with Five Guys for the [indiscernible] system and OneNeck, which is a promising partnership already bearing fruit. Together with OneNeck, we aim to tackle the new challenge due to the VMware acquisition by Broadcom for customers, as we can offer VMware product in the cloud for customer on premises, but also, we can provide alternative solutions with products such as Nutanix. The relatively modest growth in Q1 in Europe was below our expectation. We added fewer new customers than expected. This appears to reflect a degree of customer caution against the backdrop of very subdued economic growth in Europe. There was also a customer focus on workload optimization, while we were -- we had expected an improvement in that front. And of course, we had a tougher comparison basis, as a benefit from price increase annualized in Q2. Nevertheless, we see strengthening conditions in the U.S. towards the end of the quarter, and these have continued. We also observed strong pickup in the performance of our Webcloud division, reflecting the benefit of some changes we've made in our sales approach. Overall, H1 has confirmed the strength of our model, as we can see on the next slide. We have been able to improve significantly our profitability, reaching an EBITDA margin of 37.9%, up by 2.5 points compared to last year. It's a confirmation of our operating leverage with an unchanged execution and monitoring of our costs. On the cash flow side, as presented during our Investor Day, we are reducing our capital intensity, as we are demonstrating the demand-based profile of our model. We are working on all aspects of our industrial model, including operation -- occupation rate of data center of -- or improving demand planning. The strategy is already bearing fruits, whilst we were able to generated -- to generate positive unlevered free cash flow, as soon as H1, while we initially expected for H2. Let's now have a look with more details at our business performance by segment and geography. First of all, Public Cloud generated a revenue of EUR 88.4 million over H1 fiscal year 2024 and grew like-for-like by 15.8% compared to last year. Within this [ field ], we are increasingly benefiting from AI business and AI business, which includes NVIDIA GPUs and solutions, as AI notebook, AI training and AI deploy contributed by 2 points to the growth of the Public Cloud segment this semester. Furthermore, in a highly competitive market, we delivered a resilient performance in our digital channel, where our marketing investments are starting to bear fruits. At the same time, the impact of price increase was less than significant in the second quarter than in the first quarter of fiscal year 2024, while the demand was milder than expected in Europe with projects being postponed and ramp up slower than expected. Nevertheless, since the beginning of the second half, we took initiative to boost momentum. For example, we implemented a new Freemium and Postpaid marketing strategy aimed at enhancing customer acquisition, and this is already bearing fruit since the launch of this strategy in March 2024. The number of new Public Cloud project has tripled compared with the average number of projects generated in first half 2024. [ Simultaneously ], we to attract more tech prospect, we participated in an organized sector specific event, such as PaaS Forward, KubeCon, and the AI World Cannes Festival. And lastly, we geared up to launch the 3-AZ cloud offering. The soft -- solution eagerly awaited by customers will provide -- present in 3 data centers in relatively close proximity within the Paris region to ensure even better data resilience and lower latency. The next slide about Private Cloud. In Private Cloud, we posted revenue of EUR 302.5 million for H1, 2024, up 12% like-for-like comparison to H1 fiscal year '23. This performance was notably marked by a sustained demand in the strategic data sovereignty market. And as a leader in this field, we saw a sharp increase in our sovereign offering called SecNumCloud in France, that I will describe into more details later in this presentation. The slowdown in growth, especially in Q2 fiscal year 2024 was due to lower-than-expected new customer acquisition through the digital channel. At the same time, we experienced a deceleration in the enterprise channel, as prospects and customers are still optimizing their workloads and particularly in Europe. Yet at the end of second quarter, we benefited from an upturn in demand in the U.S., where the momentum is considerably stronger. From the start of H1, we set up an action plan, which include, in particular, new incentive plan for partners to strengthen the indirect sales dynamic with key accounts, new generation of entry-level Baremetal server in Q4 fiscal year 2024 to further enhance the technical performance of our Private Cloud offering, and we will also adapt our Hosted Private Cloud offering in line with changes linked to Broadcom acquisitions of VMware. We are a pinnacle partner of Broadcom ready to provide our customers the best possible support over this challenging period. The next slide is about Webcloud and Others. In our last segment, Webcloud and Others, we posted revenue of EUR 95.1 million for H1 fiscal year 2024, up 2.9% like-for-like compared to the previous year. In the second quarter, growth was up sharply by 7.3% like-for-like. This solid performance is mainly due to the positive momentum in domain names, supported by improvement in the user experience such as implementation of multi-year name renewal schemes, and we had also successfully launched a new webhosting offering during the Q1, 2024 and a stabilization in Telephony segment, thanks to an upgrade of product offering. In H2 2024, we plan to continue to take the benefit from the momentum of the domain name market, the ongoing development and the website builder features and the updated Telephony offering. The next slide, as you can see, very well aware that euro -- EU macro conditions remain difficult with recent downwards revision of GDP forecast from [ 1.2 gross to 0.6 ] in March. And as you know, Europe present -- represents a significant part of our revenues. After a good Q1, we were surprised by the milder growth anticipated in Q2 in Europe. Some contracts were negotiated -- renegotiated by our customers, but that was expected. However, the surprise primarily came on a lower demand and lower-than-expected value of new contracts and the challenge is the [ availability ] remains limited. Looking at the rest of the world, we experienced tougher competition in Asia, and the ramp-up of the Indian DC has been slower than expected due to some legal constraints, but the issues are now solved. Furthermore, in the rest of the world, we witnessed a rebound in the U.S. at the end of Q2 with a significant pickup, which has been confirmed in March. After this business update, let me deep dive in some of our strategic growth levers. First, data sovereignty. We have an anxious focus on enhancing our sovereign offering and the demand for customers is robust. The annual revenue [ rate ] and the products we are currently developing BareMetal SecNumCloud and now the full suite of the Public Cloud SecNumCloud. It's an ongoing development and the general availability should be in Q4 fiscal year '24 for BareMetal and fiscal year '25 for the Public Cloud PaaS, in particular. These new products will also enable us to target specific vertical such as health care or the public sector. If we take a step back, we see a global trend for data sovereignty, and this is accelerating everywhere in the world. In Europe, of course, where we have made significant progress in terms of regulations and new laws are still under negotiation, but more locally also in France and India, for instance. We are the data sovereignty reference and the only major provider being immune to any type of extraterritorial laws, and we are able to ensure customer needs, thanks to our dedicated products that are already available. The next slide is AI. At OVHcloud, we offer a clear and comprehensive solution based on our 4 pillars, providing all the necessary tools to fuel AI adoption for our customers. The first pillar, where we excel in offering one of the best technological solution is infrastructure. We have been running our next best-in-class GPUs from NVIDIA. And we have 100% utilization rate for our A100 and H100 GPUs. We are adding new H100 and also new L4 and [ L40S ] capacities this month in April to fuel the growth. Additionally, our network and storage capacities play a crucial role in supporting AI workloads, and we are very proud of having one of the best private network, and recognized [ outperformance ] in terms of storage. The second pillar is tools for data transformation. Customers struggle with our datasets. So we have developed products and enable customers to efficiently transform, prepare, clean or label the datasets with full transparency, control, making them usable by an AI model. All of this with very limited [ cutting ] for the customer, this is an almost [ no-code solution ]. The third pillar is the AI product layer with products already in general availability and other in beta. It's a central focus internally. We are committed to offering state-of-the-art products to our customers, enabling them to build their AI use case on our platform. This, in turn, will drive conception of our infrastructure. The fourth pillar is expertise. We have significantly improved our customer support and our ability to better serve customers, including partnership with start-ups or system integrators, and we are also working on obtaining specific certifications for AI workloads. All these initiatives are integral components of our selective CapEx plan, [ each ] supported by clear business models. Their success is already evident. As I mentioned earlier, the growth of -- in AI facilitated by GPUs and products contributed to a 2-point increase in our H1 fiscal year '24 Public Cloud revenues. As you know, and this is next slide, developing Public Cloud products, especially PaaS solution is one of our key strategic driver. We remain dedicated to enhancing our offering and commercial value proposal. We focus on 7 main segments, which you can see on the left-hand side of the slide. In the middle of the slide, you have the listed numerous product for each of these segments in that identified by their technical names. Our offering is already extensive with particular strong traction on compute products such as Kubernetes, databases on AI products. All these new PaaS products reach an annual revenue rate of [ EUR 18 million ] in February 2024. Currently, our focus is on rolling out our new PaaS products that are not yet in general availability as well improving the first version that are already live. These involve incorporating customer feedback, enhancing the customer experience and ensuring scalability and a cross-sell. By doing so, we aim to facilitate the second wave of customer adoption to drive revenue growth [ for the SaaS ] products. The last, as you know, is about local zone. As you know, we have acquired Gridscale, a German company in September 2023. We are successfully integrating Gridscale teams. And in addition, we are currently leveraging their technology. Gridscale technology enabled us to deploy local zone. It means that we can easily deploy OVHcloud [indiscernible] in colocation data center. It's part of our strategy of international expansion, while reducing capital intensity, and we don't have to make significant upfront infrastructure CapEx. These local zones bring Public Cloud services closer to customers. It enables a full compliant with certain local regulations and guarantee a low latency and an easy access to new countries for our existing customers and new local customers. We have already opened 2 local zones in general availability, 1 in Madrid, 1 in Brussels, and we plan to open a new location in the coming weeks and months. It's just the beginning in terms of product availability and customer adoption, as we only start to invoice in Q3, but we are already some good feedback from the beta testers. So now I propose that we move to the financial with Stephanie.

Thank you, Michel, and hello, everyone. I am Stephanie Besnier, CFO of OVHcloud, and thanks for being with us this morning. So as Michel said, at the beginning, we managed to deliver in H1 a sustainable growth of 10.8% like-for-like and 10.6% as reported despite a challenging environment, especially in Europe. Price increases, which are not contributing significantly to revenue growth since December '23, contributed by 2.1% to H1 growth. We continue to expect a 1 to 2 point contribution from price increase on a full year basis for FY '24. Moving to the next slide. We have a detailed view on our EBITDA, which rose sharply over the semester. As you can see, in H1, we had significant improvement of our profitability. Our adjusted EBITDA grew like-for-like by 19.6% compared to last year or 18.3% as reported, reaching EUR 184 million, giving a margin of 37.9%. In line with what we announced during our last Capital Market Day, this significant 250 basis point improvement in our EBITDA margin is coming from a strong operating leverage with a decrease in percentage of revenue of our COGS, mostly linked to our Webcloud business, contain operating costs and increased productivity of our administrative and sales and marketing teams. One of the significant items of our P&L is electricity, which is stable around 6% of our revenues. During the second half of '24, we will continue to closely monitor our cost structure, while also launching additional marketing campaigns to fuel customer acquisition. These campaigns were delayed from H1 and would slightly weigh on H2 sales and marketing costs. This cost discipline led to an improvement in net operating income, which turned positive in H1 at EUR 5.8 million versus minus EUR 6.5 million last year. It includes some non-recurring expenses, such as acquisition costs for Gridscale. In our G&A, we have a ramp-up in capitalized projects and rights-of-use of -- from leased data centers amortization, combined with a depreciation of internal software and legacy COVID stock for a bit more than EUR 12 million. Below EBIT, interest related to loans reached EUR 15.8 million due to the increase in interest rates over the period. We expect slightly lower financial interest in H2, as we have a lower all-in rate in March than the average in H1 and the rate is now almost fully fixed for H2. Let's now look at how this increase in profitability is being transformed into cash generation. So as you can see, CapEx amounted to EUR 162 million in H2 compared to EUR 194 million last year. It has been significantly optimized and represents 33.4% of sales in H1 '24 versus 44.2% in H1 for '23. With the optimization of our CapEx linked to a reduced capital intensity, increased selectivity, we have generated EUR 14 million of unlevered free cash flow in H1 '24, 6 months ahead of our initial target. We expect CapEx to be higher in H2 with some phasing of infrastructure and new generation launch, but we are now aiming to generate positive unlevered free cash flow for the full year '24. Let me give you on the next slide, a bigger picture of what we mean by optimization of CapEx and our flexible model is. So thanks to our integrated industrial model, we have a significant flexibility of our CapEx. For servers, CapEx amounted to 17% of our revenue, and here, we have 2 major trends. First, we have a reduced capital intensity of our newly produced servers and better software demand, leading to a decrease in CapEx compared to last year. If we look at infrastructure CapEx, which are slightly below last year, we have the last phase of our significant datacenters opening program, and we continue some usual infrastructure work to prepare for the next phases of growth. Finally, looking at product and software development, as announced in January, we are stable in absolute value and slightly decreasing in percentage of revenue. We continue to develop and enhance our PaaS offering to fuel our Public Cloud growth. In essence, we're reducing our capital intensity and we're paving the way to free cash flow generation. Since 2021, we've consistently expanded infrastructure, network and server capabilities. We're on track to reach 45 datacenters by the end of '24, positioning ourselves to capture a significant share of the cloud markets long-term growth. As we explained during our Capital Markets Day, it's worth noting that we've also incurred in '21 and in '22, some exceptional CapEx and also launched some product development initiatives that are yet to yield revenue. Regarding H1 '24, we are ahead of our initial target of generating unlevered free cash flow in the second half, and we generated positive unlevered free cash flow for the second semester in a row. Moving to the next slide, I want to insist on our sound debt profile. At the end of this semester, our net debt-to-EBITDA ratio is 1.9x, improving compared to the end of FY '23. Our debt is hedged at 96% and our current average interest rate is at 3.6% only, so quite low. We have more than EUR 470 million of available liquidity, which gives us a strong visibility on our financing. With no major repayment before October '26, we are very confident in our outlook. We are already working on all our options to prepare for refinancing, including increasing the spread of the maturities of our debt. Ending on this good note, I would now like to hand over to Michel for the outlook.

Okay. So how does this performance translates in our financial targets? We revised on our organic growth target for the fiscal year 2024 to account for the slower growth than expected in Europe in Q2 and March and the low visibility and customer acquisition despite a rebound in the U.S. in the last month. Our adjusted EBITDA margin target is unchanged at more than 37%, which is cautious, as we have taken into account the impact of a potential negative effect from Broadcom new licenses [ cost ] on our Hosted Private Cloud offering. Finally, we expect better than initially anticipated CapEx and free cash flow levels to account for the strong performance in H1, a direct result of our clear focus on cash generation. We now expect a 12%, 14% for recurring CapEx; and 21% to 23% for growth CapEx. And we expect our unlevered free cash flow to be positive on a full year basis now as opposed to be a positive in H2 as initially anticipated. Our target for 2025 and 2026 are unchanged, and we are very focused on execution, on delivering our strategic plan with a strong focus on cash generation, while maintaining long-term growth potential. Last point, we have announced today the appointment of Benjamin Revcolevschi as Deputy CEO. We are very pleased to have him on board with his expertise and his IT experience to reinforce our leadership team. We're going to move to Q&A.

[Operator Instructions] Our first question comes from Daria-Ioana Sipos from JPMorgan.

This is regarding some of the demand comments that you mentioned. So you mentioned some continued workload optimization in Europe and project delays, as well as the value of new contracts being lower than expected. Can you give us an idea whether the new Public Cloud projects that you signed in March that were kind of 3x larger than the average over the quarter. Have you seen any improvement there in terms of ramp speed and the size of these new contracts or have these softer demand points continued?

Yes. In Public Cloud and in the past, we have seen a good traction from customers, especially, as I said, in the last month, in March, we have seen that we were able with the new offering that we're preparing and especially the Freemium type of model that we have created, really much more -- I mean, projects 3x more projects in March than we had in the last year. However, the ramp-up of customers is slower than anticipated, especially on the cross-sell side inside the Public Cloud in U.S. As the [ OpEx ] of new customers is lower than anticipated because today, our PaaS customers are using 2, 3 customers and why we think they should use 6 to 7 products and solutions. So that's why we are working very hard to really have the marketing, sales, technical approach to be able to develop the full offering easy to use and to consume by customer because Public Cloud is a consumption mode and also to be able to acquire the acquisition of larger customers, which are consuming more PaaS, more services, more products. That's why we have a plan to specifically work on the improvement of the existing products and also to have cross-sell and upsell marketing campaigns to be able to take the benefit of these new customer acquisitions, but unfortunately, with a lower [ OpEx ] than we expected.

Our next question comes from Emmanuel Matot from ODDO BHF.

Thank you for the presentation. Four questions for me. First, do you consider that the deterioration in Europe is the same situation you saw 12 months to 18 months ago in the U.S., is it only related to market conditions and nothing really specific to OVH? Second, do you expect a lower EBITDA margin in H2 compared to H1? Third, are you already hedged at a significant level for your electricity consumption in fiscal year '25? If yes, is it at a much lower price per megawatt compared to the average of fiscal year '24? And my last question, you are much more focused on cost than before. Could you tell us how many people are working at OVH in February compared to 2,900 end of August last year?

I will answer the question 1 and 2 and Stephanie will answer the question 2 and 3. So are we considering what we see today in Europe is really similar to what we have seen in the U.S. last year. I must say that this is very similar. What we see today in Europe is very similar in the sense that we see 2 trends. The first one is really the focus by the customers to reallocate the workloads to be able to reduce our cost. And so, there is a pressure today to renegotiate contracts and consolidate the workloads of the customer. And second, we've seen also a slowdown in the decision, especially in the large and medium-sized customers to develop large workloads and big projects. So it's very similar to what we have seen in U.S. Last months of the quarter Q2 and what we see also in March and April shows that today, in the U.S., we have seen a pickup. And that's why we are absolutely convinced that midterm, the trend for cloud migration or digital [ alternative ] demand will remain strong in the midterm. And that's why we are very focusing to continue to develop new products and to intensify the capacity to propose more solutions with the [ 3 ] distinctive attributes of OVHcloud. In terms of people, in fact, we are very stable. We just increased the number of people by I mean, 40 people during the 9 first months, improving the productivity on each units of the company. And that's why also we are maintaining this level of EBITDA. But no, I give the voice to Stephanie.

Yes. Thank you for your question. So on the EBITDA -- on EBITDA, sorry, first, like you've seen on H1, we delivered exactly what we mentioned during the Capital Market Day meaning that we had an increase of our COGS by -- and it improved the margin by 35 bps, thanks to the reduced proportion of our web cloud business in our revenue. Second, we contained the operating expenses, 55 bps, and we improved the connectivity of our team in the SG&A. And here, we have not any kind of impact from the electricity costs. In H2, what we will see? I mean, we want to remain very conservative on our margin for H2, and we have factored particularly 2 impacts, first, the fact that we want to keep investing in some marketing campaigns. Some of them were delayed from H2, and we want to fuel customer acquisitions that was the first impact. The second is that we've included an estimated potential negative effect from Broadcom, our partner from the VMware products, and they have changed the model of their license costs. So this has been factored in our EBITDA guidance for the full year. So that's the 2 main area of cautiousness. And you're right, we remain very focused and very determined to maintain the cost structure as best as we can. On the electricity, we hedged, as you know, in advance, our electricity purchases. So we're almost fully hedged for '24 and close to fully hedged in '25 as well. We will see the decrease of the electricity prices in our fiscal '25 because we hedged in advance, I mean, we don't have a significant impact. We almost have no impact FY '24. You see that the cost of electricity remains stable, as a percentage of revenue in '24 compared to '23, we should see an improvement in '25.

[Operator Instructions] We have our next question from Derric Marcon from Societe Generale.

Yes. I've got 3 questions, if I may. The first one is on the contract negotiation with customers. Can you quantify this impact for H1? And what do you expect for H2? Can you do also a bit more comment on the favorable market trends in the domain name markets that you were mentioning for H1. Do you expect this to continue in H2? And what the way of visibility do you have on this trend? And the third question is on the delayed sales and marketing expenses. Can you quantify that? And so, what will be [ catched ] up in your budget in H2 versus what you were planning to do in H1?

I would comment the first -- the second question about the domain. What we've seen during the first half and especially in the Q2 is, as we mentioned, a strong, I would say, growth in domain, which was mainly fueled by the fact that we have a very high renewal rate, which is among the best in the industry. And this is certainly something we show that today, we have appropriate offering to propose to our customers, and they remain very loyal. However, the domain sector is a very versatile market, where there is, I would say, a strong upside and downside. So that's why we are still always cautious about that. However, we are confident that we have the right positioning today to propose in the domain and the web now with the new offering, the capacity to have, I would say, [ contribute ] positive momentum on the web cloud sector. About the contract renegotiation, we do not give any information about what is the impact. And the same [ with ] the delays of the development of the contracts and the operations. So this is something there -- where we do not give information. The third question was about...

Sales and marketing expenses. What we plan basically for H2, it's mostly investment in SEO and SEA campaign, brand awareness campaign. And we have also a new incentive plan for our partners to strengthen the indirect sales dynamics with our key accounts. So all in, we will remain very cautious in terms of investment in people. But at the same time, we will have some additional investments. I don't give a specific number, but I would -- it's around a few millions of additional sales and marketing for H2, mostly [ on the field ].

Stephanie, can you quantify also the cost of the Freemium strategy and the Postpaid processes that you were mentioning and that has accelerated the customer -- the pace of customer acquisition in H1. Is it possible to quantify that?

The customer acquisition, which we were talking was Freemium mainly. So it's a way, in fact, to have enlarged the prospection field in many areas and many geographies, and that's why we were able to increase that. And the reason why also we want to keep strong investment in marketing is because we've seen that the offering was very successful, thanks to the fact that we will continue, and Stephanie mentioned that we will continue to invest in SEA and SEO. Why? Because we've seen that it has been successful, and we are absolutely convinced that the benefit of having new customers and more new customers will be short term and midterm, very beneficial for the global growth of the company. However, it's clear that the level of [OpEx ] of these new customers is lower than of what we had previously. And so now the challenge is -- and the commitment that we have is to be able to increase quickly the [ OpEx ] of all this new installed base that we are generating.

And as a Freemium, Derric, there is no specific costs related to it. And the prepaid offer, it will have a slight impact on working capital but nothing significant.

Our next question comes from Yann de Peyrelongue from Gilbert Dupont.

I have 2 questions, please. The first one is on PaaS, as it is [ EUR 18 million ], so plus EUR 1 million -- so plus EUR 1 million in one quarter. What do you expect at the end of the year in terms of ARR for this segment? And then on the EBITDA, could you explain us what happened in the Public Cloud, as I see a big drop in the margin? Is it only the investment that weighted on the margin?

Okay. So on the Public Cloud margin, what we've done is that we have developed a better view and a more precise view of our cost allocation. So the decrease that you see in terms of margin is mostly the effect of this new methodology. So you need to compare, and we'll provide you some information using the same methodology on the impact of the Public Cloud margin. On the PaaS, actually, what we see here is that we have also some delay. I mean, the customers are using as of today, 2 to 3 PaaS products instead of 6 or 7. So we need to improve this consumption. And we have also a number of new PaaS products that are still in beta stage and that will further evolve and [ deoptimize ]. So that explains the impact that you see in Q2 and the general impact that we have on the Public Cloud. I mean, we still see a strong growth coming up in the coming months and quarters on the PaaS.

No further questions in the queue. [Operator Instructions] There are no further questions, so I will hand you back over to your host to conclude today's conference.

Okay. So thank you for attending our H1 fiscal year '24 call. As a wrap up, we have reached EUR 486 million revenue and EBITDA margin of 37.9% and an [ unlevered ] free cash flow of EUR 14 million. In terms of business performance, we had a softer demand in Europe than anticipated and a rebound in the U.S. in the last month of Q2 and early Q3. We have revised our fiscal year '24 targets and confirm our midterm guidance. And we expect for fiscal year '24 revenue growth between 9% to 10%; adjusted EBITDA margin above 37%, which is cautious; recurring CapEx between 12% and 14%; growth CapEx between 21% and 23%; and positive unlevered free cash flow on a full year basis. So thank you very, very much, and have a very good day.

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