United Internet AG

XETRA:UTDI

Q3-2025 Earnings Call

[Dominic Grossman, executive]

Good morning, everyone. I would like to welcome you to our Q3 2025 Analyst Investor Call. Thank you for joining us today. My name is Dominic Grossman. I'm responsible for Investor Relations at United Internet. And here with me today, I have our CFO, Carsten Theurer.

Briefly about today's call. Carsten will first take you through our presentation with the business development in the first 9 months and will also give an outlook for the rest of the year. Afterwards, we will be happy to answer your questions. So far to our agenda, I would now like to hand over to Carsten. Carsten, please go ahead. The floor is yours.

[Carsten Theurer, executive]

Thank you, Dominic, and also a warm welcome from my side to our webcast on the presentation of our 9 months figures for 2025. First of all, I would like to point out 3 noteworthy events. Number one, 1&1 has successfully completed the migration of our customers to our own network. I will get back to this later on. Number two, in October, we were able to complete the disposal of our energy business field. And number three, as mentioned during the IONOS call this morning, our group figures have been adjusted due to a change in presentation of the AdTech business in the Business Applications segment, which is carried in accordance with IFRS 5 as discontinued operation as of September 30, 2025. The prior year was adjusted accordingly.

Having said that, let's have a look on the development of our major KPIs. We are happy to report that our customer contracts increased by 480,000 to 29.5 million in the first 9 months of 2025. Our revenue subsequently increased by 1.4% to EUR 4.5 billion. Group EBITDA increased by 1.9% to EUR 966 million despite EUR 34 million higher mobile network rollout expenses compared to the same period before.

Our EBIT declined by 11.3% to around EUR 443 million. The development in EBIT is driven by higher depreciation and amortization expenses attributable to investments in the rollout of the fiber optic network at 1&1 Versatel and the rollout of the 1&1 mobile network. As a result of improved performance from our associated companies and lower tax expenses, our EPS increased by EUR 0.03 to EUR 0.75 per share.

So now we will do a deep dive into our segment development, starting with Consumer Access. And here we go. As mentioned during this morning's 1&1 call, the migration of our customers to the 1&1 mobile network has been successfully completed. This marks a major milestone for our company. What's particularly remarkable is that despite the complexity of executing the largest customer migration in the history of German telecom market, we not only retained our customer base, but also achieved net customer growth during the transition. This clearly demonstrates the strength and appeal of our 1&1 mobile brands.

Overall, the number of fee-based contracts fell by 50,000 to 16.34 million. The decrease is driven by the loss of 90,000 broadband connections to 3.86 million. However, during the same period, we were able to increase our number of mobile Internet contracts by 40,000 to 12.48 million. Despite the biggest impression, we turned a 20,000 Q1 decline into a 20,000 gain in Q2 and doubled momentum with an increase to 40,000 net additions in Q3.

I will continue on Slide 5 with the development on the segment's revenues. Revenue in the Consumer Access segment is fairly stable and amounts to approximately EUR 3 billion. Both the development of service revenues and hardware sales have remained flat year-over-year and are in line with our expectation.

That being said, if we turn our attention to EBITDA on next slide. We can observe that in particular, due to the further year-over-year increase in expenses for the rollout of the 1&1 mobile network segment, EBITDA fell to almost EUR 410 million. The network rollout costs amounted to EUR 201 million compared to EUR 167 million in the same period last year.

As shown in the breakdown next slide. The Access subsegment EBITDA remains robust at around EUR 611 million. The decline is a result of higher advanced payment costs for national roaming due to a lower-than-expected network growth at Vodafone and the different accounting treatment of certain network components under the Vodafone national roaming agreement, which are all recognized directly in EBITDA without having an impact on EBIT in comparison to the former Telefonica contract. The EBITDA margin remains fairly stable. Our rollout costs for the 1&1 mobile network amounted to around EUR 200 million and are in line with the business plan.

Moving on to the Business Access segment. We are able to increase sales by 1.1% year-over-year to EUR 435 million. At the same time, segment EBITDA increased by 2.1% to EUR 123.1 million. There was a corresponding improvement in the EBITDA margin from 28.0% in the previous year to 28.3% this year. In the first 9 months of 2025, total start-up costs for the new business fields, 5G and expansion of commercial areas amounted to minus EUR 16.3 million for EBITDA declining by almost EUR 6 million year-over-year.

Let us now turn to the application side of the business. Starting with the Consumer Applications segment. The number of pay accounts rose by 220,000 to 3.26 million. Here, we have to point out the year-over-year development in free accounts with a decline of 210,000, which shows you, in particular, the successful migration to pay accounts where we added 280,000 over the same period. Overall, we are able to grow our consumer accounts by 70,000 in Q3 year-over-year.

The growth of pay accounts, in particular, led to adjusted sales growth of 5.6% from EUR 218 million to EUR 230 million in the first 9 months of 2025. There was also further growth in key earnings figures such as EBITDA. With EBITDA increasing by 5.1% to EUR 82.9 million. The EBITDA margin remains stable at above 36%. In the Applications segment, we increased our number of customers contracts by 310,000 to almost reaching 10 million customers in our portfolio for the first time. This increase is driven both domestically and abroad with our operations abroad performing even stronger. Revenues in this segment increased by 6.2% to EUR 980 million from EUR 923 million a year ago. The increase in revenue was driven by the strong customer growth and increased up and cross-selling.

EBITDA in the Business Applications segment increased by 21.5% compared to previous year's number of EUR 290 million to EUR 345 million -- EUR 354 million, sorry. The operating EBITDA margin rose accordingly from 31.5% to above 36% as well. So much for the segments. Here, we have summarized the most important KPIs for the group once again and added a few more. Our CapEx amounted to EUR 488 million after EUR 442 million in the previous year, reflecting our continued investments in our fiber optic network at 1&1 Versatel and the rollout of the 1&1 mobile network. Please note that we are expecting a very significant proportion of our annual CapEx in Q4.

I will provide a detailed breakdown of free cash flow on the next slide. However, the significant improvement in free cash flow is already worth highlighting. Our net bank liabilities increased by 20% to over EUR 3.2 billion, which relates to a leverage of 2.4x EBITDA. In addition to our substantial investments, we paid out EUR 328 million in dividend payments and EUR 246 million as part of our voluntary public -- partial public tender offer for 1&1 shares and additional purchases to increase our stake to 86.5% overall. Our equity ratio amounted to 43.5%.

This slide shows you a bridge of our EBITDA to free cash flow. The largest items here is our next -- net CapEx of approximately EUR 485 million as a result of investments in the continued rollout of mobile network and expansion of our fiber optic infrastructure. Furthermore, we had phasing effects from Q4 2024 of around EUR 110 million. And after accounting for taxes and changes in working capital, our free cash flow before leasing stands at EUR 259 million, respectively, EUR 146 million after leasing.

And finally, a brief word on the outlook. We are confirming our revenue and EBITDA forecast and are specifying our cash CapEx forecast with accounting for AdTech as discontinued operation. We are now expecting full year revenues for fiscal year 2025 to amount to EUR 6.05 billion. Operating EBITDA is expected to amount to approx EUR 1.3 billion, which includes approx EUR 20 million in costs associated with the transition from Telefonica national roaming agreement to the Vodafone National roaming agreement. Under the Telefonica national roaming agreement, certain network components are activated and depreciated, whereas under the Vodafone National roaming agreement, these costs are recognized directly in EBITDA. This change has no impact on the EBIT.

Capital expenditures are expected to total approximately EUR 750 million, primarily driven by the continued rollout of our mobile network and the expansion of the fiber optic infrastructure. While this implies a slight spillover of investments in the following year, 2025 is still anticipated to represent the CapEx peak at United Internet. So much from our side. We are now available for any questions you may have.

[Dominic Grossman, executive]

Carsten, many thanks for explanation. Now we would like to start our Q&A session. The first question, please.

[Operator]

[Operator Instructions]

We will now take the first question. And your first question today comes from the line of Polo Tang from UBS.

[Polo Tang, analyst]

I have three different ones. So first of all, apologies, I missed the 1&1 call earlier. But can you comment on where you are in terms of getting access to low-band spectrum? And then how do you think about your network build if you're not able to get access to low-band spectrum?

Second question is just really about CapEx profiles. You mentioned for United Internet as a group that you expect 2025 to be the peak. But can you clarify whether the 1&1 CapEx has been scaled back?

And my third question is really just about the perimeter of the group and corporate structure. So what are your latest thoughts on IONOS and whether you should or should not spin out IONOS? And what's your latest thoughts on owning 100% of 1&1.

[Carsten Theurer, executive]

Thank you for your questions. Let's start with the low-band spectrum. As explained in the months before, we are still waiting of a decision for the low-band spectrum. There are some offers on the table, but they are not negotiable on our side so that we are still waiting to become true offers, which we can deal with.

And therefore, what we are anticipating is that the BNetzA will step in the process, and then we are quite sure that we will get access to low-band spectrum. So there is not worth to talk about what will happen if we don't get any access to low-band spectrum. We are quite sure that, that will come not at the end of this year as expected before. But in Q1, Q2 next year, we are quite sure that we have access to the spectrum.

Second question, CapEx profile and the call on 1&1 gave the answer that the expected CapEx next year will be on the same level than on 2025, but we stay to our CapEx expectation on the group level, which will be the top or the peak level CapEx in this year, 2025 despite the spillover on the 1&1 side. And the discussion on IONOS spin-off, we have had it in the years before, but there is no way for any spin-off without any tax issues. So therefore, there is no plan for a spin-off on the IONOS side.

[Polo Tang, analyst]

And then your thoughts on owning 100% of 1&1?

[Carsten Theurer, executive]

Not really because we -- as mentioned before, we stay at the moment at 86.5%, and we are fine with that. There is no need to get 100% at the moment. And therefore, there are no further plans to get 100%.

[Operator]

And the next question comes from the line of Mollie Witcombe from Goldman Sachs.

[Mollie Witcombe, analyst]

Just wanted to dig in a little bit more on the CapEx peak. Obviously, a large portion of that is Versatel. What -- is there any risk that at some point in the midterm, you might look to expand into new areas and we could see an uptick again in CapEx driven by that segment?

And then my second question is -- sorry if I've missed this, just on the EUR 110 million in phasing effects on the free cash flow from Q4 2024. Could you just run through quickly what that's made up of?

[Carsten Theurer, executive]

Thank you for your questions. So for the peak CapEx, we can't see there any risk at the moment that the CapEx will get, will increase in the next year because we have our rollout pace, as mentioned before, 200 to 300 sites each quarter, and that remains very stable. So therefore, we don't see any peaks despite what we already have told you that the peak CapEx will be this year. And the second question was about -- sorry, what was the second question?

[Mollie Witcombe, analyst]

There's a EUR 110 million phasing effect from Q4 '24. I was just wondering a little bit more color.

[Carsten Theurer, executive]

Okay. There are some invoices, which had a spillover from the last year, which will be paid in this year. And that means the phasing effect, which we can see in the EUR 110 million.

[Operator]

[Operator Instructions]

And your next question comes from the line of Ben Rickett from New Street Research.

[Ben Rickett, analyst]

I had two questions, please. Firstly, I might have missed this morning, that IONOS, the AdTech EBITDA seems to have collapsed as a result of the RSOC transition. Are you expecting that EBITDA to recover? Is this just a phasing issue? Or what's the outlook for that Adtech EBITDA line? And then second question, I was wondering, can you say anything about whether you've made revenue commitments to Rakuten. So specifically, I was interested if you were to stop the mobile network build, are you then liable to continue to make payments to Rakuten.

[Carsten Theurer, executive]

Starting with the first question because I didn't get the second one, but I will come back on that. On the first one, EBITDA drop on the AdTech segment. As expected, due to that effect that the old one, the old product from Google, the AFD is replaced with the new one, with RSOC. So we can see a slightly decrease on the AFD tool and only a small increase on the RSOC side.

So therefore, figures were getting better. That is what we can see month-over-month at the moment, but it is not a dramatic dynamic at the moment, to be honest. And therefore, we will have to see where we will end up at a year.

And the second question about Rakuten, what was the exact question?

[Ben Rickett, analyst]

I was just trying to understand is there any commitments that you've made to Rakuten for the 1&1 mobile network build. So if the mobile network build was to stop, is there a liability there to Rakuten?

[Carsten Theurer, executive]

I don't know about any obligations or any payments we have to do if we stop building out our network, but there is no reason to talk about that because we are on the way to build out our network. As mentioned before, we have migrated now all over our 12.4 million customers on our own mobile network.

[Operator]

And the next question comes from the line of Simon Stippig from Warburg Research.

[Simon Stippig, analyst]

Firstly, I would be interested in your expectation about when the Federal Cartel Office will disclose its decision about the Vantage Tower dispute? And then secondly, are there any discussions with your peers about consolidation such as merging or selling the 1&1 mobile network as is?

[Carsten Theurer, executive]

Starting with the Vantage question, we already expected this summer any statement from the Cartel office, but we are still waiting for it. So therefore, we can't tell you an exact date when a decision will come, but we are also waiting for that decision.

And on the consolidation, what can we say? There is not really something to tell. No one showed up here in Montabaur. If someone will come, we are open to have a conversation as always. We look more after our own activities, and we are working with very good success on our own network. And as already said, are happy to have all of our customers on our own network.

[Simon Stippig, analyst]

Okay. Great. Maybe a follow-up. Did anyone show up in Madrid from United Internet or 1&1 from the group?

[Carsten Theurer, executive]

Not as I know. There are always some calls, but not on the discussion of consolidation. We are always in touch with each other for cases like low band and things like that, but not for consolidation questions. And as I know, no one showed up here from Madrid.

[Operator]

And the next question comes from the line of Nizla Naizer from Deutsche Bank.

[Fathima-Nizla Naizer, analyst]

I just have one question, please. Your net debt to EBITDA being at 2.4x, is that a position you're comfortable with? And would you consider sort of streamlining your portfolio to free up some cash to lower that net debt if you're not? For example, would you consider selling a stake in IONOS or the Consumer Applications business? How are you sort of looking at your financial position and the portfolio that you've built?

[Carsten Theurer, executive]

Yes, leverage at 2.4x, we are feeling comfortable. As already mentioned before, we feel comfortable in the range still from 2.5 to 3, but our aim is to get more and closer to 2 in the next years. And maybe today is not the right day to talk about selling some shares of IONOS if you had a look at the stock price at the moment. So therefore, it's not the right day for this discussion.

[Operator]

There are currently no further questions. I will hand the call back to Dominic.

[Dominic Grossman, executive]

Thank you, operator, and thank you, everyone, for attending our call today. Please feel free to contact us for any follow-up questions. We wish you a nice day. Stay safe.