United Internet AG (UTDI) Earnings Call Transcript & Summary

Ladies and gentlemen, dear guests, welcome to the Analyst and Investor Conference of United Internet. I'm very happy to be able to welcome you personally here in Frankfurt again. I would like to welcome the webcast participants as well. I'm happy to take you through the agenda. First Mr. Ralph Dommermuth, we'll hear the company development of the first half of the year, and he'll also give us an outlook. And then Carsten Theurer will explain us the financials in detail. After this, you will have the option of asking questions in a Q&A session. That's all I have to say. So I can give the floor to Mr. Dommermuth.

Well, thank you very much, Mr. Grossman. Welcome, ladies and gentlemen. As far as we haven't seen earlier, I will give you the company development of the first half of 2026 of United Internet and give you an outlook to the second half of the year as well. Since the 1st of January, we have been distinguishing 3 different segments of the company in our reports. One segment is called 1&1. That's about Internet access, main brand 1&1, then Versatel for business -- for B2B and then the discount brands. Then we have the IONOS segment. The main brand is IONOS. The other brands are subsidiaries of IONOS from purchases that we've made in Germany and Europe. And then the third segment, Mail & Media, with our brands, GMX, WEB.DE and United Internet Media for our advertising areas. Let me start with the 1&1 segment. This is where we address consumers and small businesses, but also institutional customers and authorities. Let me start with the consumers and small businesses. We have 12.33 million mobile contracts. We have broadband market approach. Then we have the fixed line business, just under 4 million broadband connections, mostly VDSL and FTTH packages that we generate with our fiber optic network with last mile provided by Deutsche Telekom and regional carriers. And our largest FTTH footprint we have the largest FTTH footprint in Germany, 77% of households are connected. Then we have the segments enterprises and networks within 1&1, we reached 34% of households. It was 27% at the end of last year. Then we have the fixed line business with more than 70,000 kilometers of fiber optic network available in over 350 cities, 30,000 directly connected sites, for instance, of major companies, institutions and authorities. Customer contracts in this segment have decreased by 140,000. I mentioned it earlier, 150,000 fewer contracts for mobile Internet contracts and another -- an added 10,000 broadband connections. The loss of customers is due largely to discontinuation of particularly low-cost tariffs and reducing the data allowances included in the high-performance tariffs and then 10,000 new broadband customers. Revenue has increased by 1.6%. Service revenues decreased by 1.1%. That's now at EUR 1.805 billion. and other revenues have increased by 13.5%, now to EUR 464.8 million. The EBITDA has increased by 5.1% to EUR 382.7 million, 16.9% EBITDA margin. The second segment is IONOS, just like 1&1, it is stock listed. It is Europe's leading digitalization partner for freelancers, small- and medium-sized businesses as well as a reliable cloud enabler. We're active in 14 European countries as well as in the U.S., Canada and Mexico. We have a really broad product portfolio, domains, websites, e-shops, online marketing tools, office packages, business e-mail, online storage, AI assistance target to the needs for small and medium-sized companies and a secure cloud infrastructure. IONOS created an additional 500,000 customer contracts in the first half of the year, 5.57 million abroad and 4.98 million domestic. Overall, revenues increased to EUR 701.1 million, increasing by 6.9%. It would have been 8.2% if adjusted for foreign exchange. The EBITDA increased by 2.6% to EUR 232.6 million. Foreign exchange adjusted would have been 4.2% at significantly higher marketing expenses compared to first half of 2025. And the EBITDA margin is 33.2%, a little bit lower than last year, but we're on the right track, as IONOS has confirmed. Then Mail & Media, we cover data protection and everything is according to European legislation. We have now 50,000 accounts less than last year. Overall, we have 240,000 fewer free accounts, but the positive thing is 190,000 additional pay accounts. We're converting free accounts into pay accounts, which is working ever better. We now have 3.54 million pay accounts. And if you look at revenue, you can see that the revenue of the pay accounts is already slightly higher than -- just nearly as high, sorry, as free accounts. In the past, we only had free accounts, but we are managing to shift this. And we are also improving in terms of cloud storage. For instance, if you store your photos, that's a good thing. That is an ongoing trend that we pay more and more -- sell more and more of these pay accounts. You can see it also with the revenue. We have EUR 161.4 million revenue, plus 8.4% due to increased monetization of free accounts and strong growth in pay accounts. Then EBITDA has increased by 16.7% to EUR 62.9 million, 39% EBITDA margin, more than last year. That is going very well. Of course, you could always imagine things going better than that, but we can't really complain. Business is developing quite nicely. Now what's the outlook? We confirm the guidance for 2026. The revenue is approximately to reach EUR 6.25 billion. The EBITDA is to reach approximately EUR 1.45 billion, and the cash-CapEx is to reach EUR 600 million to EUR 650 million. So we're doing fairly well. The first half of the year has panned out very positively, and we're looking ahead quite positively into the second half of the year. And I would like to ask Mr. Theurer now to give you details on the financials.

Thank you very much, and welcome on my behalf as well. I would like to take you through the figures as of 30th of June compared to the first half of last year. And we see what Mr. Dommermuth said. If we look at the customer contracts, we see just 1 million plus, 960,000. And in the [ad-funded] media, we only have lost 30,000. We didn't lose them, but we see a conversion rate there that 360,000 new pay customers joined. So the converting business with the pay accounts is developing very positively despite we were able to have the ad funding media, Mail & Media responsible for this has developed very well in the first half of the year. Looking at the revenue, we are going towards a EUR 3 million plus compared to the year before through all segments, and that is positive as well. Each segment provides its contribution. And EBITDA on group level, we get to 5.1% EBITDA growth, which continues in the EBIT growth. We have a 20% growth here. One special effect here, which is increased depreciation from the investments and in this year by the phaseout of the PPA depreciation from the Drillisch Corporation, we see a drop in the depreciation, and that gives a positive development in the EBIT. In the EPS, in the total, we have an increase of about 60%, ending at EUR 0.775 per share in earnings. Cash flow-wise, we see a positive development as well. Before the changing of the asset, we have an increase of 3%. The net pay of the operating activities, we see an increase of 22.7%, giving us to -- CapEx is stable to the year before. The investment is stable. The net payout is a little less than the year before, but on a similar level. And the net in and out pay for the funding is EUR 207 million to the level as of the year before. That means in total, bottom line free cash flow after leasing, we end up EUR 129.7 million, which is about EUR 100 million increase to the year before. And I'd like to illustrate this with the cash flow bridge here. We start with the EBITDA, EUR 676 million. And we see the EBITDA, which is from AdTech, although reporting why it is an IFRS 5 nonconsolidated. As we reported, the cash flow still includes it with minus EUR 6 million as a negative. CapEx net, EUR 5 million and this is the gross CapEx here with EUR 280 million taxes, a lot less than the year before. That is what we had announced. The exact effect from selling Versatel to 1&1 and the connection to the entities within 1&1 leads us to pay less taxes. We will see that in the balance sheet again in a minute. Working capital lower than the year before, leaving a free cash flow of EUR 230 million. The leasing expenses with EUR 83.5 million, and that ends us to the free cash flow after lease of EUR 129.7 million. Look at the balance sheet. We see a little increase in the total. We are a bit over EUR 12 million, EUR 93 million plus. What are the changes, long- and short-term assets, we have an increase of about EUR 100 million. That is material assets from the investments that we have been carrying on to the optical fiber and mobile networks. In the assets, we see an increase of EUR 104 million by selling and buying hardware. And we also see a tax increase -- decrease. Why? In '25, we had upfront payments, which after sale of Versatel have been turned back. So we asked the tax office to pay back. This is why we see the better cash flow, less payments and of course, the profit tax, which drops. The liabilities. If we look at this, EUR 90 million increase, liabilities of performance and second half year, the bank liabilities have increased by EUR 200 million to EUR 3.5 billion. So with the dividend payments, shares buyback from IONOS package in '26 as well with EUR 84 million and the CapEx, which we funded a net debt of EUR 3.4 billion, leverage of 2.57. And these are some of the things that you see here would appear in the second half, so that the leverage there will be expected to go down south as we have forecast at the end of the year. Equity, EUR 6.3 million plus total, the ratio is slightly dropping 0.2 point to a stable level of 43.4%, driven by the result on one hand, and this is opposed by the dividend and the purchase of buyback of shares. This is why it doesn't change. And that already takes me to the end, and I would like to open the floor for questions.

Okay. Thank you for the presentation. We will start with the question-and-answer session. [Operator Instructions], [indiscernible] from Deutsche Bank to start.

I have a couple of questions, if I may. The first is on IONOS. And again, you still hold a 64% stake in the company. You previously said you still see a lot of value in IONOS. Just happy to hear your thoughts on how you feel about your shareholding there. And also, IONOS has announced a lot of high ARPU AI initiatives at the moment. How do you view those initiatives and IONOS' position as a German player within Europe with data centers at their disposal? So maybe some color on the prospects there would be great. My second question is on Mail & Media. Some of the questions we're getting is, is there an advantage for having it within the United Internet portfolio? In other words, does it help you with your other businesses to own these sort of portals? Would you consider spinning out the business, listing it, looking at options going forward? And despite the loss of the free accounts that you described, are you still seeing good engagement on the website? Or is traffic also taking a hit, which in turn affects the ad revenue on these portals? Some color there would be great.

Thank you. Let me start with the IONOS shares. We are proud and happy investor in IONOS. The company has developed greatly and the business is going on since '89, '98 in our business. That's because we started with a small company in Karlsruhe, Schlund+Partner at the time, EUR 6 million turnover. That is a dimension that we do in a day today. So over the years, that has seen great development and the company has huge opportunities. We -- you have mentioned AI as a topic. I think there is a large market for specific AI application for small and medium-sized companies. IONOS is doing initial offers with a phone assistant, which answers the phone for you, answers questions, makes appointments, for example, a chat assistant, which is 24/7 available on your website for questions and so on. And AI-supported marketing tools or a website, an app website app builder, which you can just enter your wishes by the microphone or the keyboard and then the website, if you want to build it or if you want to build an app, it is built. These are tools that fit well into the times we're living in and IONOS from my point of view, has a lot of competitive advantages. One is our own data centers with our own cloud infrastructure and also for this business, very important, the sales force because especially addressing these small companies with German products is not possible by Google alone because if you look at this, the demand for keywords and the request of customers is very low for these keywords. So we have to educate the customers and explain to them what AI is able to do and how simple plug and play can be used. And IONOS, if you want to use a phone assistant, you just select if you want to have a male or a female voice and you say the address of your website, the system scans the website and that trains it and it's done and it goes, off it goes. So only very few small companies will know that this is actually available. So I see an opportunity here for IONOS because we have millions of customers in so many countries, and we are able to drive campaigns and we have the money to do the campaigns. And well, we are in the beginning. Now it's about rolling out the product throughout the brands, adjusting it. Of course, products won't fulfill all customer demand in the first rollout and learn what the channels work and fine-tune things, but I'm very optimistic. Yesterday, we had a Supervisory Board meeting in IONOS, and we can simply calculate if IONOS keeps its figures today, if I had normal EBITDA factor 5 by next year, the share should be at 60, not 30. So what do I like? What I don't like, I like the shares. What I like is the operative business. We've seen the guidance of the revenue was increased from 7% to 8%. I think more is possible. Profitability is good. There is a lot of invest in new products. I'm very happy. And it is a fixed part of our group, and I wouldn't like to miss it. Lately, I had a job interview with some of our senior management. They ask me, where do you see the company in 5 years? The standard question. If I start here, what do you think? Where do you want to go? Obvious. And I said, I see this company at EUR 1 billion. Why shouldn't business double? If we keep the growth rates and put AI on top. We are very good in the cloud. That is no dream. Maybe it will take a year more. Maybe it will be a bit quicker. But I think it's absolutely a realistic to double the figures next -- over the next year. The market is there. It's just up to us to do it. The market is there, the conditions are there, great company, great future, not only for that. I can just be happy. You asked how does Mail & Media fit into the group and how is it connected? We've just heard Mail & Media is developing very nicely as well, generating a lot of cash. We are capital light. We generate EBIT, lots of cash. We help 1&1 in the mobile customers. By GMX, WEB.DE, we sell mobile contracts, and this is a topic we're looking into in more detail if we could do more, especially with respect to eSIM. Today, 1&1 is mainly for contracts with cell phones, bundled. If you look at the campaigns, it's always cell phones, hardware with additional things like a watch or some kind of bundle. It's always hardware. 85% of the contracts in 1&1 is on hardware. We have very few SIM only. And our discount brands nearly always only sell SIM only, but discount brands are in a segment, as we've seen today, which is discount. And we are considering whether we could do more with the portals. The portal should have more range. And as they have so many apps, is it 25 million, 28 million? I don't know. Does anybody know the figure? 25 million active apps, and we can do an eSIM within 3 minutes. So 25 million people, if you want, pressing a button, giving them a new SIM card without having to send it by mail or anything. And this is where I see great opportunity over the next years. eSIM is getting more and more. People are learning it. And -- we can do this out of the app, producing and commissioning the eSIM. And that is something we want to drive down into. And it is an additional reason why the portals besides their independence, their profitability they have already, could grow in importance as an additional and even more important channel. They are already a channel, but more important in the mobile business because we have this benefit of these millions of installed apps. And from there, I think, yes, there is a pivot. Yes, we do have business, but that business could grow, definitely. And on the other side, we're looking at doing -- combining apps of the portals with mobile phones. You get cloud storage. I think young people have 25 gigabyte free, 100 gigabyte, 200 gigabyte terabyte. And we have synchronization in the background, as you know, from your iPhone and your phone, we have that up and running. And we are moving in that. If you look at our pay accounts, lots of pay accounts are not mail traffic, but cloud-induced because people have to pay, Apple or Google, 15 gigabytes are free and then they have to pay. And now I see a big issue for the portals in the next years and also for the bundles with 1&1 products because in the group, we have this function. And we are now coming up with an even better function to manage -- to administer pictures with the best moments and so on, AI induced. That is a topic that is coming up. So on one side, we can sell more mobile phones, but we can combine it with the development of the portals as well. And this is why I'm rather in getting this geared up more rather than separating it. And if I got your last question right, it's about the engagement on the website, the traffic on our website, that is still growing. We have a good situation. Over the past years, we had the mobile traffic increasing a lot, smartphone-induced traffic and the big screen traffic dropped. And now we do see that this is -- the drop in big screen is flattening out. And big screen is well monetizable for us. small screen as well by the box ads in the inbox. But we have leveled the drop in big screen by the growth in small screen. If this decline levels off now, we're going to see better view. And we are not dependent on Google like many other websites are, which have Google traffic on them. And now Google answers more and more with AI. They are not linking to the websites. We don't have this problem. We generate our own traffic. We have log-in traffic. And this is why our traffic is still growing. And I don't see any reason why this should change. So in total, I'm very happy with that area of the business. It squares in nicely. Of course, there's lots of things that you could do better as in any business. AI is something that we integrate more and more. We're going to start with an independent AI assistant for our customers. We have lots of AI functions in the mail system, translation function, auto completion. I see opportunities there as well. So I think it is a good match in the group, and it's developing nicely.

Another question by [indiscernible].